PPC Cheat Sheet - Updated 07/01/2018
Showing posts with label PPC. Show all posts
Showing posts with label PPC. Show all posts
Saturday, July 7, 2018
Friday, July 6, 2018
Thursday, May 3, 2018
2001 Macro FRQ #1
2001 Macro FRQ #1
1) Assume that the economy is operating below the full-employment level of output and that the government's budget is balanced.
If the economy is below full-employment, the economy is in a recession.
a) Using a CLG of the AD/AS graph, show how an increase in government spending will affect each of the following in the short-run.
An increase in Gs will cause C (consumption) to increase causing an increase in AD. AD shifts right returning back to full employment. The Price Level will increase and RGDP (real output) will also increase. Use arrows to (show) what is happening on your graphs.
b) Explain how the increase in government spending will affect each of the following in the short-run.
(I) Real Interest Rates
The government has a balanced budget, so if spending increases the government must borrow from the banks. (Loanable Funds Market)
If the government is taking money out of the banks (borrowing) the supply of loanable funds decrease causing the RIR to increase.
(II) Investment (Private Investment)
As the RIR increases, private investors have a hard time getting cheap loans and therefore private investment decreases. (AKA Crowding Out)
Now assume that instead of increasing government spending, the government decreases corporate profit taxes.
(Decreasing corporate profit taxes is a good thing as businesses pay lower taxes)
C) Using a AD/AS graph show and explain the effects of a decrease in corporate profit taxes on the following:
I) Aggregate Demand - aggregate demand will increase as investment spending increases. As corporations have more money to spend now that profit taxes have decreased, we can assume their will be a higher level of spending by corporations on investment.
II) Long-Run Aggregate Supply - We would assume that an increase in investment also implies an increase in more Capital Formation and therefore the LRAS curve will shift rightward along with a shift of the SRAS curve. (lower profit taxes = lower costs to business and therefore the SRAS curve will shift to the right)
III) Real Output - as aggregate demand increases the RGDP (output) will also increase.
IV) Price Level - price level is indeterminate as the AD and AS curve both shifted right.
D) The economy produces two goods, X & Y, draw a PPC curve showing the effect of the decrease in corporate profit taxes on the economy.
Understand that the rightward shift of the LRAS curve is a shifting out of the PPC curve.
Go to this post to see how the College Board likes to test the Growth, Productivity, LRAS
Tuesday, June 20, 2017
Friday, June 9, 2017
2017 AP Macroeconomics FRQ #3
2017 AP Macroeconomics FRQ #3
(A) Draw a CLG of the PPC, with consumer goods on the horizontal axis and capital goods on the vertical axis. Indicate a point on your graph, labeled X, that represents full employment and a possible combination of goods produced.
PPC Cheat Sheet here.
Answer
(B) Assume that there is an increase in the country's national savings. Draw a CLG of the loanable funds market, showing the change in the real interest rate from the increase in savings.
Fiscal Policy Cheat Sheet here.
Understand that if savings is increasing then the supply of loanable funds is increasing.
If the supply of loanable funds is increasing then the RIR, real interest rate is falling.
Answer
(C) On the same graph in part (A), show another point, labeled Z, that represents full employed and a new combination of consumer goods and capital goods consistent with the increase in the nations increased savings.
Higher rate of savings implies a higher rate of capital investment which will lead to more future growth.
Answer
(D)Referring to your answer in part (C), will the long run aggregate supply curve shift right, left or remain the same.
The LRAS will increase in the long-run as savings increase, consumption and investment will increase. Investment will increase in capital goods and therefore future growth can be expected with a shifting rightward of the LRAS curve.
Answer
Friday, February 17, 2017
2012 (Macro) Multiple Choice - Basic, PPC, Comp ADV
2012 (Macro) Multiple Choice - Basic, PPC, Comp ADV
Answer - (A) Centralised planning
This is the main tenant of a command economy.
Answer - (C)
Answer - (B)
So, easy to find who has an absolute advantage by drawing a PPC curve,,
B can create both goods using less resources
Comparative advantage must be analysed using the math and then comparing the columns.
Looking for the country that shows the lowest opportunity cost.
Answer - (B) Involves higher costs for each transaction
Answer - (E)
(A) Z = unemployment, idle resources, underutilisation of resources = True
(B) Y = unattainable given the amount of resources
(C) W & X - fully utilised resources
(D) Capital goods are goods that promote future growth
(E) X & W are both efficient, and only society can decide which is the best for society
Answer - (D)
Trade pushes out the PPC boundary/curve
Answer - (E)
The same thing that pushes out the PPC boundary is
Population, resources,
technology, trade, human capital – at least one of these must increase
are the same things that shift the LRAS curve to the right...
Sunday, December 11, 2016
Thursday, November 3, 2016
2008 Macro FRQ #3
2008 Macro FRQ #3
Watch me answer it here
(A) Calculate the opportunity cost of a bicycle in Artland.
Artland can produce 600 Hats or 300 Bikes.
The opportunity cost is what is given up, foregone, or sacrificed. Art land only makes two things so to produce more of one thing (hats) he must give up another thing (bikes).
600/300 = 2
2 / 1
Hats/bikes = 2 hats to 1 bike
If Artland produces 1 bike he gives up 2 hats
If they had asked for the opportunity cost of a hat. Reverse it.
300/600 = .5
Bikes/Hats = .5 bike to 1 hat
If Artland produces 1 hat it gives up .5 bikes
(B) If the two countries specialise and trade, which country will import bicycles? Explain.
We have to compare both sides in the making of hats and bikes.
Ray only gives up .25 of a bike to make 1 hat - most efficient - comparative advantage in hat making.
So Ray will make hats and import bikes.
Art only gives up 2 hats to make 1 bike - most efficient - comparative advantage in bikes.
Art will make bikes and import hats.
(C) If the term of trade are 5 hats for 1 bike, would trade be advantageous for each of the following?
(i) Artland
(ii) Rayland
Look at the chart again,
Ray can trade 4 hats for 1 bike - 5 hats for 1 bike is a worse deal - Not Good
Art can trade 2 hats for 1 bike - 5 hats for 1 bike is a better deal - Good
(D) If production in Artland triples, which country has the comparative advantage in hats?
So production triples, not just in hats but in bicycles also. Art land would now have the absolute advantage but the comparative advantage wouldn't have changed.
Art = 600/300 equalised = 1 to .5
Art = 1800/900 equalised = 1 to .5
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