Nawal's AP Macroeconomics Blog

Comparative and absolute advantage Absolute advantage : who could produce more with the same resources. Or who could produce the same output with less resources.  Example: papa johns producing 20 pizza while mcdonald produces 4, because they can.  Comparative advantage : who could produce with the lowest opportunity cost Input vs output Input: Number of hours to do a job. Number Of gallons of paint to paint a house. Number of acres to feed a horse.  Output: Miles/gallon, ton/acre, words/min, apples/ tree, computers produced/hour

Foreign exchange market: the buying and selling of currency Appreciation : the value of the currency is strong. The Dollar buys more of another currency, which results in less expensive imports and more expensive exports  Imports increase because they are cheaper Creates a trade deficit Depreciation : a weak dollar. The dollar buys less of another currency, which results in more expensive imports and less expensive exports.  Cheap exports

Balance of payments: a measure of money inflows and money outflows between the US and the rest of the world. Inflows are referred to as credits Outflows referred to as debits The balance of payment is divided into 3 accounts:  Current account:  Balance of trade or net exports: Exports is a credit or an asset, while import is a debit or a liability  Net foreign income or net investment: Income earned by US owned foreign assets, also incompasses income payed to foregin held US assets  Net transfers: Foreign aid. Tend to be unilateral. EX: US giving money to another country in a time of disaster.  Capital/ Financial:  Balance of capital ownership. Includes the purchase of both real (real estate) and financial assets (stocks and bonds).  Direct investment in the US is a credit to the capital account. Ex; Toyota factory in San Antonio.  Direct investments by US firms/ individuals in a foreign country are debits the capital account. Ex: ...

Phillips curve Represents the relationship between unemployment and inflation There is a trade-off between inflation and unemployment in the short term In the short run, inflation increases as the economy expands During a recession, unemployment increases because the economy slows down Long Run Phillips Curve (LRPC) Occurs at the natural rate of unemployment Represented by a vertical line There is no trade-off between unemployment and inflation in the long run The economy produces at full employment output level LRPC will only shift if LRAS shifts Shifts of the Phillips Curve if AD changes, we will move points on the SRPC if SRAS changes, we will move the SRPC Disinflation A reduction in the rate from year to year, which can be seen in the long-run Phillip curve This also occurs when aggregate demand declines Deflation A general decline in the price level Hyperinflation When an economy experiences a high and unusual rate of inflation, which can decrease...