Create Graphs or Visual Representations
Core Concepts
Graphing is essential in AP Macroeconomics. You must accurately draw and interpret: PPC, supply and demand, AS/AD, money market, loanable funds market, Phillips curve, foreign exchange market, and business cycle. Each graph has specific labels and shift directions.
Graphing Guidelines
- PPC: Axes are two goods; curve is bowed out; label efficient, inefficient, unattainable points.
- Supply and demand: Price on vertical, quantity on horizontal; equilibrium at intersection; show shifts with arrows.
- AS/AD: Price level on vertical, real GDP on horizontal; AD downward-sloping, SRAS upward-sloping, LRAS vertical at potential GDP.
- Money market: Interest rate on vertical, quantity of money on horizontal; money supply vertical, money demand downward-sloping.
- Loanable funds: Interest rate on vertical, quantity of loanable funds on horizontal; supply upward-sloping (saving), demand downward-sloping (investment).
- Phillips curve: Inflation on vertical, unemployment on horizontal; short-run downward-sloping, long-run vertical at natural rate.
- Foreign exchange: Exchange rate on vertical, quantity of currency on horizontal; supply and demand for currency.
Common Traps
- Mislabeling axes (e.g., putting price level on horizontal in AS/AD).
- Forgetting to shift LRAS when showing long-run growth.
- Drawing money supply as downward-sloping (it is vertical, set by central bank).
- Confusing shifts of the Phillips curve with movements along it.
- Omitting arrows to indicate direction of change.
Worked Example
To show expansionary monetary policy: draw money market with vertical MS and downward-sloping MD. Shift MS right → interest rate falls. Then in AS/AD, shift AD right → price level rises, real GDP rises in short run. Label initial and new equilibrium points clearly.
Rule of thumb: Always label axes, curves, and equilibrium points; use arrows to show shifts; double-check that the graph tells the story of the policy or shock.