AP Macroeconomic Graphs Flashcards

PPC Graph

• Represents the production possibilities frontier, illustrating the maximum attainable output combinations of two goods or services.
• Shows opportunity cost and efficiency; points on the curve indicate efficient production, while points inside represent inefficiency.
• Outward shifts indicate economic growth, often resulting from increased resources or technological advancements.

Demand and Supply Graph

• Visualizes the relationship between the price of a good and the quantity demanded or supplied.
• The intersection of the demand and supply curves establishes the market equilibrium price and quantity.
• Changes in factors like consumer preferences or production costs shift the curves, affecting equilibrium.

Business Cycle

• Describes the fluctuations in economic activity over time, consisting of four phases: expansion, peak, contraction (recession), and trough.
• Expansion is characterized by rising GDP and employment, while contraction highlights declining economic activity.
• Business cycles are influenced by factors such as consumer confidence, investment levels, and government policies.

Short Run AD/AS Graph

• Illustrates aggregate demand (AD) and short-run aggregate supply (AS), demonstrating the impact of changes in economic conditions on price levels and output.
• In the short run, prices are sticky; AS may not respond immediately to changes in AD.
• Shifts in AD can lead to demand-pull inflation or recessionary gaps, while shifts in AS reflect cost-push inflation.

Money Market Graph

• Depicts the supply and demand for money, showing how interest rates are determined.
• The vertical supply curve represents the fixed money supply, while the downward-sloping demand curve reflects the relationship between interest rates and the quantity of money demanded.
• Equilibrium occurs where money supply meets money demand, influencing overall economic activity.

Loanable Funds Graph

• Represents the market for loanable funds, where savers supply funds to borrowers at an interest rate.
• The supply curve slopes upward, indicating that higher interest rates attract more savings, while demand slopes downward as borrowers seek funds.
• Equilibrium interest rate influences investment and savings rates in the economy.

Investment Demand Graph

• Illustrates the relationship between the interest rate and the quantity of investment demanded.
• Typically, higher interest rates decrease investment demand, while lower rates encourage borrowing and investment activities.
• Factors influencing investment include business expectations, technology, and government policies.

Foreign Exchange Graph

• Shows the supply and demand for foreign currency, indicating how exchange rates are determined.
• A higher demand for a country's currency strengthens it, affecting international trade and capital flows.
• Shifts can result from changes in interest rates, inflation, and political stability, influencing export and import levels.

Phillips Curve

• Demonstrates the inverse relationship between unemployment and inflation in the short run.
• Low unemployment tends to be associated with higher inflation rates, while higher unemployment correlates with lower inflation.
• The long-run Phillips Curve suggests no trade-off between inflation and unemployment, implying a natural rate of unemployment.