Final Review

Question 1

Production Possibilities Curve

Answer 1

Opportunity Cost
1 PFF Curve
Y-axis:capital goods 
X-axis:consumer goods
Shifters: change is resource quantity/quality, technology, change from trade

Question 2

Ceilings and Floors

Answer 2

Y-axis: price
X-axis: quantity
Supply line upward
Demand line downward
If equilibrium price is too low, floor helps create profit. (surplus)
If EP is too high, ceilings help make products affordable. (shortage)

Question 3

Investment Demand (cost of borrowing money)

Answer 3

Y-axis: interest rate
X-axis: Qig (quantity of investment)
Downward ID line
Groups who borrows affected: businesses (Ig), housing/mortgages, education expenses

Question 4

AD/AS

Answer 4

Y-axis: PL
X-axis: GDPr
LRAS (vertical) - FE (Yf)
SRAS: upward
AD: downward

Question 5

Money Market

Answer 5

Set by Fed
- If govt increases spending, more money is demanded (MD shifts right) (Congress/fiscal policy) 
- MS is all the money in circulation (not in Fed) 
Y-axis: interest rate
X-axis: Qm
MS (money supply): Vertical
MD (money demand): downward
Buy/Sell bonds

Question 6

FOREX-Dollar Market

Answer 6

Y-axis: €/$ (P$)
X-axis: Q$
S$: upward
D$: downward
- if you change the supply of one currency, shift demand of the other.
- one currency always appreciates, one depreciates

Question 7

FOREX-Other Country

Answer 7

Y-axis: $/€
X-axis: Q€
- Talking about the MS of the other country NOT U.S.

Question 8

Loanable Funds (money in banks)

Answer 8

Y-axis: real interest
X-axis: Qlf
Slf (savings): upward (people or businesses inc/dec savings)
Dlf(borrowing): Downward (people or businesses inc/dec demand for loans)

Question 9

Opportunity Cost

Answer 9

The loss of potential gain from other alternatives when one alternative is chosen. A benefit that a person could have received, but gave up, to take another course of action.

Question 10

Crowding Out

Answer 10

Y-axis: pl
X-axis: GDPr
LRAS: vertical
SRAS: upward
Economy in recession.
Congress (fiscal policy) lowers taxes and increases spending
- deficit spending > higher interest rates

Question 11

Philips Curve

Answer 11

Y-axis: inflation rate 
X-axis: unemployment rate
LRPC: vertical 
SPRC: downward
Recession: downward right
Inflation: upward left
Stagflation: upward right
SRS: left downward