New All About AP Economies _ Sunny Kim * PPC/PPF Capital anab le. sood oto 209 sure’ tay Feoductioe efficlency. Capital g00d CReseuras ave Used fully aed “4 peut (once Lag effacten 4), re cate. efreeney ui er play {ecessicn a Consumer goods —, output: peductuity 1 Seon © pie to Buctttyt/ Cseotey tt of Resources. Crtexted Grog, NRuy) Consumer goods RURUS Nata) Fee of unemploymentAP Economics ~ Sunny Kim %* Circular-flow diagram [ Product Market GDP= Total Expenditure = Total Income Income($) Domestic market a Expenditure (8) Gov Government sector Banking/financial sector International sector(<4 R= unemplaymert — robe SNRU = Natural Rate of uvemploy me New All About AP Economics _ Sunny Kim %* Economic fluctuation UH aes Price Level ry Real GDP ‘Tee WR) fatewtod GP full employment letel of apr bu sini wap) = me ° Price Price s Level pbs Level ‘ ' ' \ i bp i AD L A£ Real GDP & 1 Real GDP + chal OR, HRS Nm Aelual URS NRU Shifters + AD: C (personal income tax), I, GS, NX Trlerat ate (=dewarng cost) > Consumption W Invetmed] 2 AD) * SRAS: Input price (wage, raw material costs, production costs)/ Inflationary expectation Technolog yt + LRAS : Increase in quantity / quality of resources (productivity) e+) human caprhd, caprhud Stock, Research ave develpment (Rep) Tndease in Technology J Trovease vray‘New All About AP Economics _ Si * Loanable funds market < Loanable Fund Market > Real S lending. Or Quantity of loanable funds Shifters + Demand curve of loanable funds: Investment / government spending (e+) Aefic? spenting + Supply curve of loanable funds: Saving / foreign investment Gover imen + budpet= olefae/- + Money market ‘Nominal Interest Mp holding cash 6 Quantity of money Shifters + Money demand : Income (= real GDP 1) (= GSt> AD 1) > Spending t> Holding cash}= MD} Price level 1-> expensive ->Holding cash | = MD t + Money supply Monetary policies controtled by a central bankBack to the POTENTIAL GDP!!!!! (not long-run economic growth) Method 1) Classical View _ Self-correcting Pro ong-run perspective (SRAS shift to get new long-}un Equilibrium) < Recessionary Gap > < Inflationary Gap > ° sas SRS Price we a spiSa Level Price Level £0, i pe Real GDP ev Real GDP r (nflati « a iF inflationary expectation, . : (Inflationary expectation})> Input prices(wage)| > bras) Input prices(wage)t > nas) ‘Method 2) Keynesian View _ Fiseal policy (Government: AD shift) : Short —run perspective Expansionary FP: GSt>ADt Tax | > Disposable income t > Consumption 1, Investment | > AD + > Results: Real GDP t, Unemployment rate |, Price level 1, Interest rafe CGychea URL) 7 (Hom Real HR + TAF) Contraetionary FP: NRU cae dange) GS {PADI ‘Tax 1 > Disposable income | > Consumption |, Investment | > AD | > Results: Real GDP | , Unemployment rate 1, Price level |, Interest rate | War Red xR +aff ) < Inflationary Gap > bs < Recessionary Gap > UR owe Real GDPMethod 3) Monetarist Monetary policy (Central bank: AD shift) _ Short-run perspective Expansionary MP: \ (‘R t > MS 1> Iiierest rate | >/Consumption 4, Investment t> AD } Dj Boned Buy Bonds FFRet < Money market > < Revessionary Gap> Nominal / Price ie sts Interest Level rate “ ~~ Av’ ar MD. % Q\ 7, Ciantity of money Xi Yep Reel GDP ractionary MP: eet > MS {> Interest rate 1 > Consumption |, Investment | AD | ( Dee Sel Barels Ltrs tT market > < Inflationary Gap > ri LRAS ope? i e) o Nomina Ms Level |S Pa rate ay A NMP } ts Real GDP a Quantity of money* Phillips Curve 6 Unemplog a ex jo Tea if tell befaen ToFlofon ancl rel raed < Short-run Phillips Curve_ Movement < Short-run Phillips Curve_Shift Tablet Taf, * vate ~ ol Oy . y ; LOY ~ SBP NOS SR rf t Rey) No Tede-ofl fefuaor TE ont up Maeve ‘Loigerun Dhillips Curve Classical view> 0 Economic growth(NRUJ) 7 LRpe th Tn lac UNC ate a "Gy SS = KZ eee uldorum YS Reewion | ™ sepe \ | Natuell rake =f URC) MRO Aetuet Wk) unemplymen UR - Cull UR Shifters + Cy1,.G,NX > AD shift > SRPC mg venient + Change in inflationary expectation ->Change in input price > SRAS shift > SRP‘ + C,1,G,NX > AD shift > LRPC movement (no change in NRU) *+ Change in quantity/quality of resources -> LRAS shift > LRPC 6hifl )+ Economie growth (1) PPC (2) LRAS (3) LRP Inflation (ere) Lepe Ue, LMS, Iman ~ |? ‘ < \ 4 | \ \_? \ Real ODP (iu, (Rjpemployment ae . t we) + Foreign exchange market JPY price(=cost) of USD y capital) ice of USD in terms of JPY Tmport-/ [ vutflow. ice of USD relative to JPY | y ‘ En , ss, tom Xo coptal 7 ‘4 (RYT 1 Epa / oT on Quantity of USD Shifters, + Demand curve : Export / capital inflow + Supply curve: Import / capital outflow