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Diagrams are one of the most important aspects of IB Economics. While memorizing definitions and theories is essential, students are also expected to communicate economic concepts visually through accurate diagrams. In many cases, a strong diagram can significantly improve the quality of an exam response or internal assessment commentary. Although the IB Economics syllabus contains many macroeconomic diagrams, a relatively small number appear repeatedly in Paper 1, Paper 2, and Internal Assessment tasks. In this post, we examine the most important macroeconomics diagrams that every IB Economics student should know thoroughly.
IB Economics Diagrams – Macroeconomics
AD/AS Model
The Aggregate Demand–Aggregate Supply (AD/AS) model is the foundation of IB Macroeconomics. It is used to analyse changes in national income, price levels, economic growth, inflation, and unemployment. Aggregate demand represents total demand in the economy at different price levels, while aggregate supply represents total output produced by firms at different price levels. The interaction between AD and short-run aggregate supply (SRAS) determines short-run equilibrium output and price level, while long-run aggregate supply (LRAS) represents the economy’s potential output. Most macroeconomic policies, including fiscal and monetary policy, are analysed using this diagram.
Things to keep in mind:
Always label the vertical axis as “Price Level” and the horizontal axis as “Real GDP,” as this distinguishes macroeconomic diagrams from microeconomic ones clearly.
Include AD, SRAS, and LRAS curves, ensuring LRAS is drawn as a vertical line at potential output.
Clearly label equilibrium points such as E₁ and E₂, along with corresponding price levels and output levels.
Use arrows to show shifts in AD or SRAS and clearly indicate whether the economy is expanding or contracting.
Distinguish between short-run and long-run equilibrium when appropriate, especially in policy evaluation questions.
Ensure LRAS is perfectly vertical and positioned correctly at full employment output.
Keynesian AD/AS Model
The Keynesian AD/AS diagram differs from the classical model by showing that the economy may not always operate at full employment. It includes a horizontal, upward-sloping, and vertical section of aggregate supply, reflecting different levels of spare capacity. This diagram is particularly useful for analysing recessionary gaps, inflationary gaps, and the effectiveness of fiscal policy. It highlights that demand-side policies may be necessary when the economy is below full employment, especially during deep recessions.
Things to keep in mind:
Draw the Keynesian AS curve with three distinct sections: horizontal (recession), upward-sloping (intermediate), and vertical (full employment).
Clearly label equilibrium output below or above potential output, depending on the scenario.
Highlight recessionary or inflationary gaps using shaded areas or clear annotations.
Use AD shifts to demonstrate the impact of fiscal or monetary policy interventions.
Ensure smooth transitions between the three segments of the AS curve.
Clearly distinguish potential output from actual output using vertical reference lines.
Phillips Curve
The Phillips Curve shows the inverse relationship between unemployment and inflation in the short run. It is used to explain trade-offs faced by policymakers when attempting to reduce unemployment at the cost of higher inflation, or vice versa. In the long run, the curve is vertical at the natural rate of unemployment, showing that there is no permanent trade-off. This diagram is central to discussions of monetary policy and supply-side shocks.
Things to keep in mind:
Label the vertical axis as “Inflation Rate” and the horizontal axis as “Unemployment Rate.”
Draw a downward-sloping short-run Phillips Curve and a vertical long-run Phillips Curve.
Clearly distinguish between movement along the curve and shifts of the curve.
Label equilibrium points to show changes in inflation and unemployment over time.
Include annotations for expected inflation when relevant to the question.
Ensure the long-run Phillips Curve is vertical at the natural rate of unemployment.
Lorenz Curve and Gini Coefficient
The Lorenz Curve is used to illustrate income or wealth inequality within an economy. It compares the actual distribution of income to a perfectly equal distribution. The further the curve lies from the line of equality, the greater the inequality. The Gini coefficient quantifies this inequality as a ratio of the area between the Lorenz Curve and the line of equality. This diagram is often used in development economics and discussions of equity and redistribution policies.
Things to keep in mind:
Draw a 45-degree line representing perfect equality and a bowed Lorenz Curve below it. The diagram should look like a semicircle at this point.
Ensure both axes are labelled as cumulative percentage of income and population.
Clearly label the area between the Lorenz Curve and the equality line when referencing the Gini coefficient.
Make the curvature realistic – more inequality means a greater distance away from the equality line.
Use clear percentages (0% to 100%) on both axes.
Lorenz Curve (Policy Redistribution)
This variation of the Lorenz Curve is used to demonstrate the impact of government redistribution policies such as progressive taxation, welfare payments, and subsidies. It shows how income distribution becomes more equal after government intervention. The post-redistribution curve lies closer to the line of equality, reflecting reduced inequality. This diagram is particularly useful in evaluating fiscal policy and discussing equity in development economics.
Things to keep in mind:
Draw two Lorenz Curves – one before redistribution and one after redistribution.
Clearly show the post-redistribution curve closer to the line of equality.
Label both curves clearly to avoid confusion during evaluation.
Ensure both curves remain within the same axes for accurate comparison.
Highlight the reduction in inequality visually using shading or arrows.
Unemployment Diagram (AD/AS or Labour Market)
Unemployment is typically illustrated using either the AD/AS model or a labour market diagram. In AD/AS, unemployment is shown when equilibrium output is below full employment output, while in the labour market model, unemployment is represented as an excess supply of labour. This diagram is central to macroeconomic policy discussions, including demand-side and supply-side policies aimed at reducing unemployment.
Things to keep in mind:
Clearly define the type of unemployment being shown (cyclical, structural, or frictional, if relevant).
In AD/AS, show output below potential output with a recessionary gap.
In labour market diagrams, the wage above equilibrium leading to excess labour supply.
Label unemployment clearly as the gap between labour supplied and demanded.
Use arrows to indicate policy responses such as shifting AD or labour demand.
Ensure clarity in distinguishing between equilibrium and disequilibrium situations.
Inflation Diagram (AD/AS Perspective)
Inflation in IB Economics is most commonly illustrated using the AD/AS model. Demand-pull inflation occurs when aggregate demand increases, while cost-push inflation occurs when aggregate supply decreases. This diagram helps explain how changes in spending, costs of production, or supply shocks affect the overall price level in an economy. It is frequently used in discussions of monetary policy, fiscal policy, and external shocks such as oil price increases.
Things to keep in mind:
Clearly distinguish between demand-pull (AD shift) and cost-push (SRAS shift) inflation.
Label initial and new equilibrium price levels clearly to show inflation.
Use arrows to indicate shifts in AD or SRAS and resulting price changes.
Include real output changes to show trade-offs between inflation and growth.
Ensure LRAS is included when discussing long-run inflation effects.
Keep the diagram consistent with AD/AS conventions used elsewhere in macroeconomics.
Economic Growth Diagram (AD/AS or PPC)
Economic growth can be shown using either the AD/AS model or the Production Possibilities Curve (PPC). In AD/AS, growth is represented by an outward shift in LRAS, while in PPC, growth is shown as an outward shift of the curve. This diagram is essential for understanding long-term increases in productive capacity, driven by improvements in technology, labour force, or capital stock.
Things to keep in mind:
In AD/AS, show LRAS shifting to the right to indicate increased potential output.
In PPC, draw a clear outward shift of the entire curve.
Label causes of growth such as investment, technology, or human capital.
Distinguish between short-run increases in AD and long-run growth in LRAS.
Clearly label initial and new equilibrium points.
Ensure shifts are realistic and clearly justified in written analysis.
We hope you found this post helpful in learning more about common macroeconomics diagrams encountered in IB Economics. For more useful materials associated with the IB, check out the wide variety of IA, EE and TOK exemplars available at Clastify and other guides available on our blog.
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