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AP Macro Review IV

Teaching Phillip To Dance�

Unit 5

DR. Burgin

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What we are covering this Session

  • 5.6 Economic Growth
  • Phillip’s Curve

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Economic Growth

  • When you think of GROWTH, think of triplets…
    • Production Possibilities Curve
    • Long Run Aggregate Supply
    • Economic Growth

But First…

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Economic Growth

LRAS

Production Possibilities

When something happens to affect one, it affects all three!

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What causes Production Possibilities to Increase/Decrease?

  • Capital Investment
  • Productivity
  • Human capital
  • New Technology
  • New resources

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Phillip’s Curve

  • Short Run – shows trade off between unemployment and inflation
  • Movement from “A” to “B” due to

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  • AD shift to the right

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Phillip’s Curve

  • Increase in AD from 1 to 2
    • Higher output (thus lower unemployment)
    • Higher Price Level
    • Shift in AD = Movement (in opposite direction)

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Phillip’s Curve

  • Decrease in SRAS from 1 to 2
    • Lower output (more unemployment)
    • Higher Price Level
    • STAGFLATION
    • Shift in SRAS= Shift (in opposite direction)

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Phillip’s Curve

  • Teaching Phillip to Dance
  • “Move your AD, Shift your SRAS!

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Let’s go to the Doc Cam!!!

  • Before we do…
  • AS/AD on Left, Phillips Curve on Right
  • Assume we have A Natural Rate of Unemployment of 5% and Current Inflation Rate of 5%. The Current Unemployment rate is 5%
  • Draw an AS/AD (SR & LR) and Phillips Curve (SR & LR) depicting this situation

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2019 FRQ #2

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2025 FRQ#1 Parts a & b

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2005 set 1 parts a-c