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 long-run 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 long-run 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 ______1______ ______1______ Initial change in spending 1- MPC MPS 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) Change in Income 2) Change in Population 3) Change in Tastes and Advertising 4) Change in Consumer Expectations 5) Change in the price of: a) Substitute Goods/Services b) Complimentary Goods/Services

Supply: 1) Input Costs (resource prices) 2) Technology 3) Number of Suppliers 4) Taxes (& Subsidies) 5) Regulations 6) Expectations (Producer) 7) Subsidies

TABLE 38.2

Determinants of Exchange Rates: Factors That Change the Demand for or the Supply of a Particular Currency and Thus Alter the Exchange

Th

is F

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re In

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rate

s th

e V

ario

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Th

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atio

n P

olic

y. D

ete

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ts T

ha

t

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er C

on

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te P

ub

lic P

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y o

r are

Stro

ng

ly In

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d b

y P

ub

lic P

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y a

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ed

.

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)