0
$\begingroup$

I am taking AP Macroeconomics, and am about 2/3 of the way through the curriculum. We have learned about various supply-demand graphs, and right now we are working on the market for money. I have noticed that with every model we learn about, there are a set of rules to remember which tell whether something will be a shift in the supply-demand graph. However, it is not ideal to have to remember these rules for every model we have looked at.

Is there any general rule for what events will definitely cause a movement, and what events will definitely cause a shift?

Thanks!

$\endgroup$
1
$\begingroup$

The supply and demand curves are plotted as functions of price. Hence:

  • Changes in price will result in movements.
  • Changes in anything else will result in shifts.
$\endgroup$
15
  • $\begingroup$ Well what about a scenario where the Fed starts buying T-Bills from banks, giving them more available cash, which lowers interest rates. Is that not a change in price? Or is that not 'direct' enough? $\endgroup$
    – Addison
    Feb 15 '19 at 1:49
  • $\begingroup$ @Addison: That can be modeled as the market for money, with the supply curve shifting right. We then have a downward movement along the demand curve so that indeed the interest rate falls. $\endgroup$
    – user18
    Feb 15 '19 at 2:13
  • $\begingroup$ I see, so it would shift supply and move demand. What is the best way to figure out if Demand or Supply shifts or moves? Or is there no 'best' way? $\endgroup$
    – Addison
    Feb 15 '19 at 2:15
  • $\begingroup$ Any change in anything other than price will result in a shift in either or both the supply and demand curves. There is no 'best' way to figure out which of the two (or both) shifts -- it depends on the context. For example, on a sunny day, the demand for ice cream may rise (with supply unchanged), while the supply of solar-generated electricity may rise (with demand unchanged). $\endgroup$
    – user18
    Feb 15 '19 at 2:18
  • $\begingroup$ @Kenny LJ: Your explanations are really great and Addison, your questions are also. One question: In your first comment, I understand that supply curve would shift right. ( because there's more money ). Why would the demand for money go down and why does the interest rate fall. Probably not good questions but I'm a total beginner with this material. Thanks. $\endgroup$
    – mark leeds
    Feb 15 '19 at 2:25

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.