If you crack open almost any lower level economics textbook you won’t get very far in before you encounter the Production Possibility Frontier.  In the most widely circulated (although total garbage) econ textbook of all time, Samuelson Nordhaus, you’ll encounter their famous PPF of guns vs. butter on page 11.

The idea is simple: if you choose between producing two things that consume the same resource you can either produce all of Thing A, all of Thing B, or some combination depending on how much of the resource it takes to make A and B.  As an easy example considering either saving or spending:

Now let’s toss in one other economic model, another very basic one, called the Loanable Funds graph.  At its most basic this is nothing more than a supply/demand curve for money, and your price is the interest rate.

However, as you know we don’t have a free market for the price of money.  The interest rate isn’t a market-based equilibrium price; instead it is heavily influenced by the Federal Reserve.  When a central bank sets the interest rate below where it would have otherwise been that shifts the supply curve to the right:

What’s going on above?  Well think about what happens when the Fed forces the interest rate lower than it otherwise would have been.  When your savings account pays a very low interest rate what do you do?  You save less.  When your credit card charges a much lower interest rate what do you do?  You spend more.  Point 1 (above) is the amount of savings that is actually taking place, but based on the suppressed interest rate Point 2 is how much savings it falsely appears is taking place.

Now overlay your Production Possibility Frontier from above & the Loanable Funds curve and – presto – the anatomy of a bubble appears: