Effets - Graphiques Flashcards
In the SOLOW MODEL
what is the steady state and its characteristics ?
sY = dK
Inet = 0
In the SOLOW MODEL
What is the consumption?
Y - sY (between Y curve and sY curve)
In the SOLOW MODEL
What are the axis ?
Y, sY, dK
And
K
In the SOLOW MODEL
What are the curves ?
dK
Y = AF(K)
sY = sAF(K) : total savings
In the SOLOW MODEL
What is Inet?
sY - dK (between sY curve and dK curve)
In the SOLOW MODEL
What are the characteristics of being under the steady state ?
dK < sY
Inet > 0
In the SOLOW MODEL
What are the characteristics of being over the steady state ?
dK > sY
Inet < 0
In the SOLOW MODEL
What happens if the saving rate (s) increases ?
sY curve shift upward
So Inet increase
But consumption decrease
K* and Y* increase
So Y increase until we get to the new steady state
In the SOLOW MODEL
What happens if the depreciation rate (d) increases ?
dK curve became more vertical
So Inet decrease
But consumption don’t change
K* and Y* decrease
So Y decrease until we get to the new steady state
In the SOLOW MODEL
What happens if A or Kh increase ?
Both Y curve and sY curve shift upward
So Inet increase
But consumption don’t change
K* and Y* increase
So Y increase
Since we can increase technology with no limit, A is the key to having a continual growth
What is the PPC MODEL
Production possibilities curve
It represent the trade off between 2 goods in the economy
In the PPC MODEL
What is the type of curve and why ?
It’s a concave curve (since it’s not always a constant trade off)
In the PPC MODEL
What are the axis ?
The two goods
Exemple : good Y and good X
So:
Y
And
X
In the PPC MODEL
What happen if the economy is on the PPC curve ?
To produce more good X one must sacrifice production of good Y
To produce more good Y one must sacrifice production of good X
There is an opportunity cost (OC) because ressources must be reallocated from one sector to another
In the PPC MODEL
What happen if the economy is inside the PPC curve ?
It means we are making waste
The production is not efficient
In the PPC MODEL
What happen if the economy is outside the PPC curve ?
It is not feasible
To meet these not feasible production we must increase our productivity
In the PPC MODEL
What happen if we increase technology (productivity in one good) ?
It is only the X that increase
That allow the achievement of a previously impossible production (initially outside the PPC curve)
In the PPC MODEL
What happen to the OC of a good if we increase technology (increase of productivity in the other good) ?
If we increase the productivity of X for exemple then the OC of Y increase
In the LABOUR MARKET MODEL
What are the axis?
Wages (w)
And
Amount of labour (L)
In the LABOUR MARKET MODEL
What are the curves?
Supply (S) : households
Demand (D) : firms
In the LABOUR MARKET MODEL
Where is the equilibrium point and what are its characteristics ?
At the intersection of S and D curve
L* (Ls = LD) and w*
Unemployment is 0 (u = 0)
In the LABOUR MARKET MODEL
What is the effect of a wage increase ?
Above the equilibrium wage (w*)
Ls > LD
More people want to work than there are jobs to fill
More unemployment
Less output so GDP/cap decrease
In the LABOUR MARKET MODEL
What is the effect of a wage decrease ?
Under the equilibrium wage (w*)
Ls < LD
Less people want to work than there are jobs to fill
More labor shortage (less unemployment)
More output so GDP/cap increase
In the LABOUR MARKET MODEL
What is the effect of a drop in demand (rigid wage)?
Demand curve shift to the left
Ls > LD
More people want to work than there are jobs to fill
More unemployment
Less output so GDP/cap decrease
In the LABOUR MARKET MODEL
What is the effect of a increase in supply (rigid wage)?
Supply curve shift to the right
Ls > LD
More people want to work than there are jobs to fill
More unemployment
Less output so GDP/cap decrease
In the LOANABLE FUNDS MODEL
What are the axis ?
r
And
LF
In the LOANABLE FUNDS MODEL
What are the curves ?
SLF : households and government
DLF : firms
In the LOANABLE FUNDS MODEL
What does represent DLF ?
Investment
In the LOANABLE FUNDS MODEL
What does represent SLF ?
Savings
In the LOANABLE FUNDS MODEL
What is a net exporter ?
S > I
NX > 0
In the LOANABLE FUNDS MODEL
What is a net importer ?
S < I
NX < 0
In the LOANABLE FUNDS MODEL
What is the equilibrium ?
S = I (intersection of DLF and SLF)
NX = 0
In the LOANABLE FUNDS MODEL
What does the 2 different graphs represent ?
The closed economy (world)
The small open economy (country)
In the LOANABLE FUNDS MODEL
What are the variables of the closed economy graph ?
r, S and I*
In the LOANABLE FUNDS MODEL
What are the variables of the small open economy graph ?
r, S and I
Where r = r* + teta
In the LOANABLE FUNDS MODEL
What can make the SLF shift to the right ?
Disposable income increase
Anticipated future disposable income decrease
Household wealth decrease
Optimism decrease (pessimism)
Marginal propensity to save increase
(T - G) increase
In the LOANABLE FUNDS MODEL
What can make the SLF shift to the left ?
Disposable income decrease
Anticipated future disposable income increase
Household wealth increase
Optimism increase
Marginal propensity to save decreases
(T - G) decreases
In the LOANABLE FUNDS MODEL
What can make the DLF shift to the left ?
Anticipated profits decrease
Firms optimist decrease (pessimism)
In the LOANABLE FUNDS MODEL
What can make the DLF shift to the right ?
Anticipated profits increase
Firms optimist increase
In the MONEY MARKET MODEL
What are the axis ?
i
And
M
In the MONEY MARKET MODEL
What are the curves ?
Money supply (Ms) : vertical
Money demand (Md)
In the MONEY MARKET MODEL
What is Ms curve ?
Sum of all deposits in the banking system
Controlled by the central bank
In the MONEY MARKET MODEL
Where does come from Md curve ?
From households
In the MONEY MARKET MODEL
What is the equilibrium ?
iequi and Mequi (intersection between Md and Ms)
In the MONEY MARKET MODEL
What increase Md curve ?
An increase in price
An increase in income (economic expansion: GDP)
A decrease in interest rate
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
What are the axis?
P
And
Y (GDP)
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
What are the curves?
AD (C + I + G)
SRAS
LRAS
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
What is the variable associated with LRAS curve?
Yp (potential production)
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
What is the variable associated with the intersection of SRAS curve and AD?
Y (actual production)
P*
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
What is the variable associated with the axis price ?
Inflation (PI)
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
What is the variable associated with the axis Y (GDP) ?
g (growth of production)
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
What is the output gap and its relation with unemployment ?
The output gap is the distance between Yp and Y
Y < Yp : underemployment gap
Y = Yp : full employment gap
Y > Yp : over employment gap or overheating
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
Where is the long run expectation point ?
Intersection between the LRAS curve and the AD one
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
What can make AD curve to shift?
Any changes in C, I and G since AD = C + I + G
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in government spending (G) affect AD curve ?
If G increase the AD shift to the right
If G decrease the AD shift to the left
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in income (C) affect AD curve ?
More income means more consumption (C)
If income increase the AD shift to the right
If income decrease the AD shift to the left
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in interest rate (C, I) affect AD curve ?
More interest rate means less investment and less consumption since more savings
If interest rate increase the AD shift to the left
If interest rate decrease the AD shift to the right
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in wealth (C) affect AD curve ?
More wealth means more consumption
If wealth increase the AD shift to the right
If wealth decrease the AD shift to the left
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in expectation (optimism) (C, I) affect AD curve ?
Higher expectation (optimism) means more consumption and investment
If expectation (optimism) increase the AD shift to the right
If expectation (optimism) decrease the AD shift to the left
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in corporate taxes (I) affect AD curve ?
More taxes means less investment
If corporate taxes increase the AD shift to the left
If corporate taxes decrease the AD shift to the right
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in price of oil (I) affect the curves if it’s not a large share of GDP ?
Only SRAS curve is affected
If there is a change in oil price that mean there is a change in production cost so production is less favorable
If P increase then SRAS shift to the left
If P decrease then SRAS shift to the right
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in price of oil (I) affect the curves if it’s a large share of GDP ?
AD and SRAS curves are affected
If there is a change in oil price that mean there is a change in production cost so production is less favorable but investment become more interesting
If P increase then SRAS shift to the left and AD shift to the right
If P decrease then SRAS shift to the right and AD shift to the left
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in production capacity (A) affect the curves ?
LRAS and SRAS curves are affected
If there is a change in productivity that mean there is a change in Y and Yp
If productivity increase then SRAS and LRAS shift to the right by the same proportion
If productivity decrease then SRAS and LTAS shift to the left by the same proportion
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in production cost affect the curves ?
Only SRAS curve is affected
If there is a change in production cost but prices don’t change it makes production less or more favorable
If production cost increase then SRAS shift to the left
If production cost decrease then SRAS shift to the right
In the AGGREGATE SUPPLY AND AGGREGATE DEMAND MODEL (closed economy)
How does a change in money supply m affect the curves ?
If there are more money supply that decrease the interest rate but if there are less money supply that increase the interest rate
An increase in the interest rate make AD shift to the left
An decrease in the interest rate make AD shift to the right
