"There
are three kinds of economics: Greek-letter, up-and-down, and airport." Paul
Krugman
Graphs
to Remember
In this course you will be seeing a number of
S & D graphs that will be used to "simplify" the story of macroeconomics. This
works for you only if you invest a little time in developing an understanding of
these graphs, and this page is designed as a guide to some of the more useful
graphs. For those who are not yet masters of graphical analysis, you are
strongly encouraged to follow the guidelines emphasized in class that include
NEVER try to answer a question that involves one of these graphs without drawing
the graph. Furthermore, most of these graphs look similar so you must work
to keep them separate, something that does not come natural to many. I
suggest that for each model of a market you identify the major participants and
the list of factors that would affect them.
Supply and Demand
Where
- S =
Supply
- Supply depends upon (cost of inputs,
productivity, # of suppliers)
- D =
Demand
- Demand depends upon (price of other goods,
ability to buy (income, wealth), expectations)
Aggregate Supply and
Demand (AS-AD)
- AS =
Aggregate
Supply (productive capacity of nation)
- Supply depends upon (cost of inputs,
productivity, # of suppliers)
- AD =
Aggregate Demand (demand for US output)
- = C + I + G + X - M
- C = Consumption = spending of US households
= depends on (ability to buy (income, wealth), expectations, interest rates)
- I = Investment = spending of US firms =
depends on (ability to buy (profits, sales), expectations, interest rates)
- G = Government spending
- X = Exports = spending of foreigners =
depends on conditions in other countries and exchange rate
- M = Imports = spending of US on foreign
"stuff" = depends on conditions in US and exchange rate
Foreign Exchange
markets (Exchange rates)
Where
- S =
money supply = depends upon (Fed, banks (excess reserves), households
(portfolio allocation)
- D =money
demand depends upon state of economy
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