AP Macroeconomics
AP 5.6
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Mankiw (M) Ch. 25
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GDP can be used as a measure of economic growth and prosperity. While GDP is not the perfect measure of prosperity, when manipulated as a per capita (per person) value, it can be an indicator of living standards, prosperity and growth. Click the link to the left. Consider the country comparisons of GDP per capita by the World Bank.
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As a country acquires resources,
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The Business Cycle is a model of economic growth. I want to give the Tamoclass credit for this simple graph (tamoclass/.wordpress.com). It's excellent.
The individual phases of the business cycle are represented as short-run, but the trend line is the long-run growth. The aggregate market will go through periods of expansion and contraction. However, consistent pursiut of economic growth can achieve better standards of life even when recessions have occurred. |
However, political leaders often focus on the decrease of unemployment for their constituents and call it economic growth. So,
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AP 5.3
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M Ch. 30
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In this graph, the supply of money affects both the value of money and the price level for goods and services.
MS is the money supplied to the economy by the Fed. MS is vertical or inelastic because the Fed establishes the quantity supplied to the economy. An increase in MS is represented by a shift to the right (green). A decrease in MS is represented by a shift to the left (orange). MD is the money demanded by participants in the economy. The value and price equilibrium is where MS and MD intersect. Notice that when money supply increases, where MS and MD intersect, the value of money has decreased and prices have increased (inflation). Notice that when money supply decreases, where MS and MD intersect, the value of money increases and price levels decrease (deflation). |
This graph is all over the web for varying periods of time, but the same representation. The original source of the graph comes from the U.S. Dept. of Commerce and the Federal Reserve.
What this tells us:
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Monetary Neutrality is the concept that regardless of increasing money supply, in the long-run real GDP does not change.
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Aggregate Market
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Demand-pull and Cost-push inflation |
Krugman Mod. 33
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When a nation emerges from a recession,
Demand-pull Inflation occurs in the early expansion:
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Late in an expansion, Cost-push Inflation occurs when
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AP 5.2
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M Ch. 35
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We learned previously that the Production Possibilities Curve (PPC) represents the maximum goods that can be produced and consumed by a country using all available resources. These resources include the maximum use of labor resources. The maximum of employed labor is called full-employment, which is at the natural rate of unemployment.
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We learned just earlier that the Aggregate Market graph demonstrates the Aggregate Demand (AD) and Short-run Aggregate Supply (SRAS) and also the Long-run Aggregate Supply (LRAS). The LRAS is the PPC. The LRAS and the PPC are both the maximum goods that can be produced and consumed by a country using all available resources. The LRAS supplies the maximum goods when we are at full-employment or the natural rate of unemployment.
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Now you are introduced to the trade-off between either trying to manage unemployment or inflation. They have an inverse relationship in the short-run. Yet, in the long-run, unemployment hovers around a natural rate of unemployment, also called full-employment. The Long-run Phillips Curve is vertical, representing the natural rate of unemployment, no matter the rate of inflation.
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Yes. That's true in the SHORT-RUN.
Classical economists are looking at the long-run. Observe the interaction between the short-run and long-run Phillips curves to the left.
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If a nation wants to reduce inflation, it must endure a period of high unemployment and low output.
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