Economics Lecture Notes: Key Graphs in Macroeconomics

Introduction

Lecturer: Jacob Clifford
Focus: Important graphs in AP or college-level macroeconomics
Purpose: Understand how different economic graphs illustrate the economy's state and interactions

Represents maximum production capacity using all resources
Points on the curve: Efficient use of resources
Points inside the curve: Inefficient use, representing unemployment
Types of Unemployment:
- Frictional: Between jobs
- Structural: Replaced by technology
- Cyclical: Due to economic downturns
Full Employment: Economy is doing well, but some unemployment (e.g., 5%) is normal
Recession: Economy performing below capacity
Inflationary Gap: Economy overheating with very low unemployment

Illustrates economic fluctuations over time
Trend Line: Represents full employment
Phases:
- Recession: Decrease in GDP, increase in unemployment
- Recovery: Decrease in unemployment, move towards full employment
- Inflationary Gap: Overheating economy with super low unemployment

Aggregate Demand (AD): Demand for all goods and services
Aggregate Supply (AS): Supply of all goods and services
Full Employment: Equilibrium between AD and AS
Negative Output Gap: AD falls, unemployment rises
Inflationary Gap: AD rises, unemployment falls
Self-Adjustment: Economy returns to full employment over time as wages and prices adjust

Shows relationship between inflation and unemployment
Long Run Phillips Curve: Vertical, representing full employment
Short Run Phillips Curve: Shows short-term trade-offs between inflation and unemployment

Supply and Demand for Money: Determined by central bank's monetary policy
Interest Rates: Adjusted through monetary policy (e.g., buying bonds to lower rates)
Impact: Alters spending, AD, and moves economy towards full employment

Demand and Supply for Currency: Affects exchange rates
Impact on Economy:
- Appreciation of currency decreases exports, reduces AD
- Affects net exports and overall economic balance