Plotting Inflation and a Recession in P-Y Space (an Essential Skill for AD-AS Analysis)

This activity is appropriate for macro principles students and it requires that students be able to read a time series chart as well as know that the price level uses the symbol "P" and and real GDP uses "Y." They also need to be able to identify a recession in a FRED chart and when the Great Recession was. However, it is best not to to tell students about what the symbols P and Y represent as it is part of the activity. There are no class size limitations. It should take about 15 minutes.

Overview

Students frequently face difficulties when they face different representations of the same phenomena. Micro examples include cost curves in a table and in a graph. Here, something similar is explored -- a recession and inflation in both a time series plot and in P-Y space. The latter, of course, is used in aggregate demand and supply analysis.

Expected Student Learning Outcomes

Students will be able to plot the same macro phenomena in either a time series representation or in P-Y space.

Information Given to Students

FRED data (Microsoft Word 2007 (.docx) 54kB Jul23 18)

Plotting Inflation and a Recession in P-Y Space (an Essential Skill for AD-AS Analysis)

Given the above chart, which way did the economy move on the graph on the lower right during the Great Recession? Please start at the dot in the center of the graph.

    A. up and right
    B. up and left
    C. down and right
    D. down and left

For a follow-up, be sure to ask in which direction the economy would move during and expansion with inflation and perhaps a recession with deflation.

In a later quiz or exam one might ask in which direction the economy would move during a recession with deflation.

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