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Economics Classical AD/AS Diagram

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my IA article doesn't talk about long run AS... I want to plot AD shifting to the right. where do I plot the LRAS? at the equilibrium point of AD1 and SRAS?

thanks before


oh and a question:

my article is http://www.independent.ie/business/irish/consumers-still-not-spending-but-exports-continue-to-shine-2804142.html

in paragraph 3 they said domestic demand fell by 3% but then they said the GDP grew 1.3%? so did the AD decrease or increase?

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In this particular case you do not need to include the LRAS curve as you are not actually using and it will just complicate the points you are trying to highlight. Just draw an AD and an (SR)AS curve with the AD shifting to the right.

The article may be saying that domestic demand fell, but AD is aggregate demand (for the economy as a whole) while domestic demand does NOT include the value of exports and since the article is constantly noting that the economy is driven by rising exports (and a bit of investment) it is possible that domestic demand falls (as consumption is shrinking) but exports are rising so the overall effect is an AD rising (probably you can comment here that the rise in NX is greater than the fall in consumption).

Btw this is a really awesome article for an Economics commentary :)

Also, I think that you should also not that probably the main reason for falling consumption in the economy are the negative household expectations. I am pretty sure you will have already noted it, but I'm just saying it in case you missed it :)

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and btw you are totally awesome at economics Jirasimosu! THANK YOU SO MUCH!!!!! <3 <3 <3 i was so afraid i misunderstood the article and wanted to change article, but you showed the light at the end of this long, dark tunnel. thank you so much you saved my life!!!


Danai, while you're here i thought i'd just ask as well:

this is for my other commentary:

http://www.bloomberg.com/news/2011-07-28/s-african-wheat-producers-may-seek-higher-import-tariff-1-.html

should I plot tariff diagram or unemployment diagram? and would it be okay if I go pro tariff in this case? thank you so much in advance!

Edited by Summer Glau

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Danai, while you're here i thought i'd just ask as well:

this is for my other commentary:

http://www.bloomberg...-varied-1-.html

should I plot tariff diagram or unemployment diagram? and would it be okay if I go pro tariff in this case? thank you so much in advance!

*I am glad I can help :)

Is the link broken? :S it says there is an http 404 error

Edited by Jirashimosu

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I assume that the second article is for your IA in the International Economics section. If that is actually the case then I would certainly advice you to avoid the unemployment graph and stick to the import tariff one. The reason I am suggesting this is because of the instructions by the IBO on the sections you should be doing your IAs, which are:

  • Microeconomics
  • Macroeconomics
  • International Economics
  • Development Economics OR 2 other sections combined.

I did my fourth commentary on Macroeconomics and International economics and if you have both an unemployment graph as well as a tariff graph, the examiner might consider it as the IA with 2 combined sections. Also, you want to be purely on international economics. Despite that, when discussing the issue of protectionism, there is a great amount of talk on the effect it has on unemployment so you should definitely elaborate on it but avoid the graph. You will need the words that would otherwise be wasted for explaining the unemployment graph.

Now, you want to go in favor of the tariff imposition? Well, of course you can express your opinion (there is a huge debate on this issue), but I would suggest keeping a neutral tone. It is inevitable though so you will probably have more points in favor rather than against the import tariff (I did something similar when talking on a Classical Vs. Keynesian issue for my Macro commentary). Also, the trend nowadays is more in favor of free markets without government intervention, free of protectionism so you are kind of going towards the opposite side of the flow :P Personally I disagree with protectionist measures, but it pretty much depends on what you believe. When you go into Development Economics you will see that whenever the IMF was asked to help less developed countries, they did it by removing protectionism and advocating in favor of free markets, but there always is a LOT of debate, especially when talking about less developed countries. Again I will say that it all comes down on what you think. If you decide to support protectionism, do not forget to include the points against it as they are your evaluation.

Edited by Jirashimosu
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thanks a lot Jirashimosu! if I could give that +10 I would've done so!!

because of the instructions by the IBO on the sections you should be doing your IAs, which are:

  • Microeconomics
  • Macroeconomics
  • International Economics
  • Development Economics OR 2 other sections combined.

where exactly is this stated? I've been looking for something like this for the past few weeks because I'm a bit doubtful:

I've completed 3 IAs: 2 on micro and 1 on macro. now we're doing one on international relations but I asked my teacher if my article could be related to both IR and macro, he said yes can... so I'm doing it :/ perhaps just a small reference to macro though, because I don't want to do any other IA next time :(

hmmm I think I will try to bring up both pro and con arguments..but if I were to disagree with the tariff imposition, what should I suggest to solve the unemployment problem? :S

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thanks a lot Jirashimosu! if I could give that +10 I would've done so!!

because of the instructions by the IBO on the sections you should be doing your IAs, which are:

  • Microeconomics
  • Macroeconomics
  • International Economics
  • Development Economics OR 2 other sections combined.
where exactly is this stated? I've been looking for something like this for the past few weeks because I'm a bit doubtful:
I've completed 3 IAs: 2 on micro and 1 on macro. now we're doing one on international relations but I asked my teacher if my article could be related to both IR and macro, he said yes can... so I'm doing it :/ perhaps just a small reference to macro though, because I don't want to do any other IA next time :(
hmmm I think I will try to bring up both pro and con arguments..but if I were to disagree with the tariff imposition, what should I suggest to solve the unemployment problem? :S

hmmm I think I will try to bring up both pro and con arguments..but if I were to disagree with the tariff imposition, what should I suggest to solve the unemployment problem? :S

Well I do not know where it is stated. I just trust my teacher :P. Actually I did one micro, one macro, one international econ and one in both macro and international, I got 19/20 and my IAs were actually sent for moderation so since the moderator was fine with the commentary combining two sections, then I guess it is alright.

Well, when you are dealing with less developed countries it is really hard to say (there are hundreds and hundreds of factors to consider). I would mainly disagree with the tariff due to the increased inefficiency (in the already inefficient) economy. Actually if they impose the tariff, unemployment will fall in the short term, but in the long term, due to higher inefficiency, it actually rise. Also, the production of wheat (or whatever the product they want to impose the tariff on) will increase, leading to higher supply of the good, thus lower price. So despite the fact that they are producing more, their incomes will be less. In the article it says that the effect on the price will be small, but still there will be an effect and you cannot neglect the fact that the economies of African countries depend upon primary goods production. But why do you need to suggest a solution to the unemployment problem? Evaluation is not about suggesting solutions but about contradicting the theory you are using. If you really want to suggest (in a few lines) a policy, then I would go either with expansionary policies (monetary or fiscal - but again one should consider the interest rates, their effects on the ER, on investment, etc., the debt and deficit of the country and others) or supply side policies (but again here one could say that in the s/t unemployment may actually rise but in the l/t due to a more efficient economy it will actually fall). These two solutions would be valid because an expanding economy, with increasing GDP and higher growth rates, will be able to provide more jobs since it is producing more than before.
When it comes to tariffs you can evaluate the theory by comparing the "winners" and "losers". For instance, the winners in this case would be:
  • Domestic producers as the quantities, total revenues and probably profits rise (quantities and TR can be shown on the graph)
  • Workers employed in domestically in protected (by the tariff) sectors
  • The government as it gains tax revenues (which, if you want to evaluate EVEN more, can be used to produce, for example, for the production of merit goods)

The losers though are:

  • Consumers as they buy less quantities for a higher price (shown on the graph)
  • Foreign firms because the quantities imported are less and so are their total revenues
  • Foreign economies because their exports fall
  • The domestic economy due to higher inefficiency (deadweight losses), shifting the LRAS to the left - and having the effect of higher unemployment in the long term, lower incomes, lower productive potential, etc.
  • The domestic economy as it can face possible retaliation by trading partners who may impose tariffs on your country's products, reducing your exports

    You see that there are a LOT of points to make and you have a really limited space /:

Edited by Jirashimosu
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