ModuleEconomic Growth inMacroeconomic Models

KRUGMAN'SMACROECONOMICS for AP*

40

Margaret Ray and David Anderson

What you will learnWhat you will learnin thisin this ModuleModule::

• How long-run economic growth is represented in macroeconomic models

• How to model the effects of economic growth policies

Long-run Economic Growth and Long-run Economic Growth and the Production Possibilities Curvethe Production Possibilities Curve

K’K

C’

C

Watch the slide animation.1.What do points A, C and K represent?2.What do points B, C’ and K’ represent?3.What would have caused the shift to PPC’?

LR growth is a shift outward of the PPC.SR fluctuation is a movement along PPC.

Long-run Economic Growth and the Long-run Economic Growth and the Aggregate Demand-Aggregate Supply ModelAggregate Demand-Aggregate Supply Model

Watch the slide animation. 1. What would shift LRAS to LRAS’?

Distinguishing Between Distinguishing Between Long-run Growth and Long-run Growth and Short-run FluctuationsShort-run Fluctuations

Watch the slide animation. Answer the following questions.1.What part of the business cycle are we in? How does the graph show this?2.What happens to P and Y as we move towards Yf?3.Where do P and Yf end up?

4.What part of the business cycle are we in? How does the graph show this?5.What happens to P and Y as we move towards Yf?6.Where do P and Yf end up?

Distinguishing Between Long-run Distinguishing Between Long-run Growth and Short-run FluctuationsGrowth and Short-run Fluctuations