ECO2013 Graphs shifts and all the information you will need for the graph portion of the final exam On this graph point B represents the current amount of good an economy can produce Moving to point A would represent ineffi ciency don t move the curve and shifting the curve to point C would represent growth The solid upwqard arrow represents the potentianl RGDP The dotted line is the actu al RGDP and it tells us how efficient we are being Point A is a trough or low point and in terms of unemployment anything below potential is cyclical Point B is a peak boom representing full employment Points A to B represent an expansion phase where GDP is increasing and unemployment is low Point B to C is contraction recession where GDP declines and unemployment is high Demand Shifts are caused by Income normal vs inferior goods Number of buyers in a market innovation Price of related products substitutes and complements Expectations Anything but price Supply Shifs are caused by Production cost Number of sellers Changes in technology Natural disasters In the loanable funds market supply is the lenders b c they respond to interest rates and demand is borrowers Supply shifts increase savings S shifts right decrease savings S shifts left Demand Borrowing increases D shifts right Borrowing decreases D shifts left Everything produced Aggregate supply AS Everything purchased demanded consumed Aggre gate demand AD Short run aggregate supply SRAS Long run aggregate supply LRAS APL average price Changes in AD Wealth in a booming economy AD shifts right In a recession AD shifts left RIR inverse relationship btwn RIR and AD It will be on a loanable funds graph Expectations about the Economy if outlook is poor savings increase demand decreases and vice versa Expectations cause things to happen Changes in expected rate of inflation good time to buy if inflation is expected to go up bc prices will seem cheap AD will shift right APL will go up and infla tion happens Changes in income abroad If wealthier country buys exports our GDP increases along w AD and vice versa Changes in SRAS Cost in production or resources Supply Shock Changes in LRAS changes in technology changes in of resources When the money supply increases the sup ply curve shifts to the right If the money supply decreases the supply curve moves to the left Right shift FED buys bonds Left shift FED sells bonds The self correcting mechanism shows that we will always get back to LRAS The cycle changes and fluctuates but always corrects itself in the long run Laffer curve is one possible rep resentation of the relationship between rates of taxation and the hypothetical resulting levels of government revenue The Rahn Curve suggests that there is an optimal level of gov ernment spending which max imizes the rate of economic growth
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