Production Possibilities Curve – An economic model that shows the maximum combination of goods and services that can be produced with a fixed (scarce) amount of resources (C.E.L.L.). FIGURE 35.6 Production possibilities and long-run aggregate supply. (pg 723) (a) Economic growth driven by supply factors (such as improved technologies or the use of more or better resources) shifts an economy's production possibilities curve outward, as from AB to CD. (b) The same factors shift the economy's long-run aggregate supply curve to the right, as from AS LR1 to AS LR2 .
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Production Possibilities Curve – An economic model that shows the maximum combination of goods and
services that can be produced with a fixed (scarce) amount of resources (C.E.L.L.).
FIGURE 35.6 Production possibilities and long-run aggregate supply. (pg 723)
(a) Economic growth driven by supply factors (such as improved technologies or the use of more or better resources) shifts an economy's production possibilities curve outward, as from AB to CD. (b) The same factors shift the economy's long-run aggregate supply curve to the right, as from ASLR1 to ASLR2.
FIGURE 37.2 Trading possibilities lines and the gains from trade. (pg 761)
(K)
As a result of specialization and trade, both the United States and Mexico can have higher levels of output than the levels attainable on their domestic production possibilities curves. (a) The United States can move from point A on its domestic production possibilities curve to, say, A′ on its trading possibilities line. (b) Mexico can move from Z to Z′.
FIGURE 35.11 The long-run vertical Phillips Curve.
Increases in aggregate demand beyond those consistent with full-employment output may temporarily boost profits, output, and employment (as from a1 to b1). But nominal wages eventually will catch up so as to sustain real wages. When they do, profits will fall, negating the previous short-run stimulus to production and employment (the economy now moves from b1 to a2). Consequently, there is no trade-off between the rates of inflation and unemployment in the long run; that is, the long-run Phillips Curve is roughly a vertical line at the economy's natural rate of unemployment.
Calculations 1) GDP= C + I + G + XN = AD (also see Circular Flow) 2) Nominal Interest Rate = Real Interest Rate + Inflation 3) Price Index = Nominal GDP Real GDP 4) Money Multiplier = ________1_________ Reserve Requirement 5) The Multiplier (Expenditures/GDP): Change in real GDP ______1______ ______1______ Initial change in spending 1- MPC MPS 6) Marginal Propensity to Consume = change in consumption change in income 7) Marginal Propensity to Save = change in saving change in income
Determinants of…
Demand: 1) Change in Income 2) Change in Population 3) Change in Tastes and Advertising 4) Change in Consumer Expectations 5) Change in the price of: a) Substitute Goods/Services b) Complimentary Goods/Services