Models to know.

PPF

4/24/2013 2:26:00 PM

Each axis has either the capital or consumer goods on it. The curve is round if non-specialized. The PPC illustrates an economys tradeoffs of producing different goods. This economy faces increasing opportunity cost (thus being bowed out.) Rightward shift is growth.

Supply and Demand Curve Equilibrium in any market exists where the demand curve intersects supply. When demand shifts right, market price and quantity both increase. When demand shifts left, market price and quantity both decrease. When supply shifts right, market price decreases and quantity increases. Axis: V: Price Level Axis: H: Quantity of goods Price ceilings cause shortages Price floors cause surpluses

Aggregate Demand/Aggregate Supply Model The LRAS curve is vertical. Axis: V: Price Level Axis: H: Real GDP Expansionary policy shifts AD to the right with higher prices, greater output, and lower unemployment Contractionary policy shifts AD to the left, lower prices, output, and increased unemployment Money A rightward LRAS is economic growth Market Model Axis: V: Nominal Interest Rate Axis: H: Quantity of Money The Supply of money is dictated by the Fed and is thus vertical. The Fed buying bonds increases MS. Nominal interest rates decrease.

The Fed selling bonds decreases MS and increases NIR As households decide to spend more, MD increases. (Shift right) NIR increases as a result of consumer expenditures. As MD decreases (Shifts Left) and houses decide to spend less money, NIR decreases.

Loanable Funds Market Axis: V: Real Interest Rate Axis: H: Quantity of Loanable Funds Increased interest rates increases demand for loanable funds. (Shifts Demand Right) RIR increases, thus crowding out private spending. Decrease in government spending causes Demand to shift left and RIR and Quantity to decrease. Households increasing savings will supply those loanable funds to investors. (Shifting S right) RIR decreases and quantity increases.

Foreign Exchange Market Axis: V: Exchange Rate Phillips Axis: H: Quantity of US Dollars Increase in demand for US dollars appreciates the value of the currency. (Shift Right with D.) Decrease in demand for US dollars depreciates the value. (Shift Left With D) Increased supply depreciates the value of the currency. (Supply shift right) Decreased supply (Supply shift left) Appreciates the value Curve Axis V: Inflation Rate Axis H: Unemployment Rate Short Run Phillips curve slopes downward Demonstrates tradeoff between inflation and unemployment SRPC shifts right with Decrease in Short Run Ag Supply (higher prices with greater unemployment)

SRPC shifts left with increase in SRAS (lower prices, less unemployment) LRPC is vertical at natural rate of unemployment. In the long run, theres no tradeoff.