1. Models in AP Economics
Sally Meek 1

2. Models in AP Macroeconomics2

3. Let’s focus on models Directions for FRQ’s include: …….
… it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers.
A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Use a pen with black or dark blue ink.

4. Macroeconomics Key Graphs
Production Possibilities Frontier
(opportunity cost, economic growth, trade)
Circular Flow Model
(National Income Accounting)
Market Supply and Demand
(foreign exchange markets)
Macroeconomics Key Graphs

5. Macroeconomics Key Graphs
Aggregate Supply and Demand,
Including LRAS
(monetary policy, fiscal policy, market self regulation)
Investment demand
Money Market
(monetary policy)
Macroeconomics Key Graphs

6. Macroeconomics Key Graphs
Loanable funds market
(fiscal policy)
Phillips Curve – short run and long run
Macroeconomics Key Graphs

7. Production Possibility Frontier
Increasing opportunity costs
Constant opportunity costs
Good X
Good X
Good Y
Good Y
Production Possibility Frontier

8. Using PPFs and comparative advantage
Radios
Radios 3 2 12 4
Wheat
Wheat
Using PPFs and comparative advantage

9. Using PPFs and CPFs Assume they trade 1 r for 3 w Radios 4 Radios 3 212 4 6
Wheat
Wheat
Using PPFs and CPFs

10. Circular Flow Model Product Market Government Firms Households
Consumption expenditures
Goods and services
Net taxes
Net taxes
Government
Firms
Households
Public goods and services
Public goods and services
Land, labor, capital. entrepreneurial ability
Rent, wages, interest, profits
Resource Market
Circular Flow Model

11. Perfectly Competitive MarketS P1 D Q1 Q
Perfectly Competitive Market

12. Non-price determinants
Demand
Changes in:
Taste and preference
Income
Marketsize (# of buyers)
Consumer expectations
Price of related goods
complements or substitutes
Supply
Changes in:
Resource prices
Technology
Number of sellers
Producer expectations
Taxes and subsidies
Price of alternative goods
Non-price determinants

13. Currency Markets Supply and Demand
Yen/$
$/Yen
SYen
D$1
SYen1 D$
DYen
USD
Yen
Currency Markets
Supply and Demand

14. Determinants of Exchange Rates
Changes in any of the following:
Relative real interest rates
Relative price levels
Relative national income
Taste for imports
Speculation
Determinants of Exchange Rates

15. Aggregate Supply and Demand
LRAS PL
SRAS
PL1
AD=C+Ig+G+Xn Yf
RGDP
Aggregate Supply and Demand

16. LRAS – changes in technology, productivity, and the quantity or quality of land, labor, capital
SRAS – changes in input costs and inflation expectations
AD – changes in personal consumption spending, gross private domestic investment, government purchases and net exports
Determinants

17. Investment Demand RIR As RIR changes the quantity of
(As compared to the expected rate of return)
As RIR changes the quantity of
Investment demanded changes
Other determinants shift the ID curve:
costs of capital
business taxes
Technology
expectations ID Q
Investment Demand

18. Money Market MS NIR MS – affected by actions of the Federal Reserve
MD –
Transaction demand
determined by GDP
Asset demand
determined by NIR i1 MD Q1 Q
Money Market

19. Loanable Funds Market RIR Supply of Loanable Funds:
personal savings and
financial capital from
abroad
Demand for Loanable Funds:
firms demand for funds for
capital and interest
sensitive consumption
S LF r1
D LF Q1 Q
Loanable Funds Market

20. Phillips Curve – LR and SR
LRPC
Inflation rate 4% 2%
SRPC (assumes 4 % expected inflation at each UR)
SRPC (assumes 2% expected inflation at each UR)
Natural rate of
unemployment
Unemployment
rate
Phillips Curve – LR and SR