Download Production Possibilities Curve – An economic model that shows the

Production Possibilities Curve – An economic model that shows the maximum combination of goods and
services that can be produced with a fixed (scarce) amount of resources (C.E.L.L.).
FIGURE 35.6
Production possibilities and long-run aggregate supply. (pg 723)
(a) Economic growth driven by supply factors
(such as improved technologies or the use of
more or better resources) shifts an economy's
production possibilities curve outward, as from
AB to CD. (b) The same factors shift the
economy's long-run aggregate supply curve to
the right, as from ASLR1 to ASLR2.
FIGURE 37.2
Trading possibilities lines and the gains from trade. (pg 761)
(K)
As a result of specialization and trade, both the United States and Mexico can have higher levels of
output than the levels attainable on their domestic production possibilities curves. (a) The United States
can move from point A on its domestic production possibilities curve to, say, A′ on its trading possibilities
line. (b) Mexico can move from Z to Z′.
http://www.youtube.com/watch?v=SJQ56vJoy3Y
http://www.youtube.com/watch?v=6LIuLAu-KNs
http://education-portal.com/academy/lesson/applying-the-production-possibilities-model.html
http://education-portal.com/academy/lesson/shifts-in-the-production-possibilities-curve.html
Really it’s all just Supply and Demand!
Equilibrium in the longrun AD-AS model.
FIGURE 35.2
FIGURE 35.11
The long-run vertical Phillips Curve.
Increases in aggregate demand beyond those
consistent with full-employment output may
temporarily boost profits, output, and
employment (as from a1 to b1). But nominal
wages eventually will catch up so as to sustain
real wages. When they do, profits will fall,
negating the previous short-run stimulus to
production and employment (the economy now
moves from b1 to a2). Consequently, there is no
trade-off between the rates of inflation and
unemployment in the long run; that is, the longrun Phillips Curve is roughly a vertical line at the
economy's natural rate of unemployment.
Calculations
1) GDP= C + I + G + XN = AD (also see Circular Flow)
2) Nominal Interest Rate = Real Interest Rate + Inflation
3) Price Index = Nominal GDP
Real GDP
4) Money Multiplier = ________1_________
Reserve Requirement
5) The Multiplier (Expenditures/GDP):
Change in real GDP
Initial change in spending
______1______
1- MPC
6) Marginal Propensity to Consume = change in consumption
change in income
7) Marginal Propensity to Save = change in saving
change in income
Determinants of…
Demand:
1)
2)
3)
4)
5)
Change in Income
Change in Population
Change in Tastes and Advertising
Change in Consumer Expectations
Change in the price of:
a) Substitute Goods/Services
b) Complimentary Goods/Services
______1______
MPS
Supply:
1)
2)
3)
4)
5)
6)
7)
TABLE
38.2
Input Costs (resource prices)
Technology
Number of Suppliers
Taxes (& Subsidies)
Regulations
Expectations (Producer)
Subsidies
Determinants of Exchange Rates: Factors That Change the Demand for or the
Supply of a Particular Currency and Thus Alter the Exchange
This Figure Integrates the Various Components of Macroeconomic Theory and Stabilization Policy. Determinants That
either Constitute Public Policy or are Strongly Influenced by Public Policy are Shown in Red.
TABLE 38.1
The U.S. Balance of Payments, 2009 (in Billions)
Table 38.1 is a simplified balance-of-payments statement for the United States in 2009. Because
most international financial transactions fall into only two categories—international trade and
international asset exchanges—the balance-of-payments statement is organized into two broad
categories. The current account located at the top of the table primarily treats international trade.
The capital and financial account at the bottom of the table primarily treats international asset
exchanges.
U.S. Trade Balances in Goods and Services, Selected Nations, 2009
The United States has large trade deficits in goods and services with several nations, in particular,
China, Mexico, and Germany.
(K)