Homework
What does liquidity mean? The ease of turning assets into spendable money
Define “reserves:” percentage of deposits banks must hold on to
What could the FED do in recession to the reserve rate to expand money in the market? Decrease the “reserve rate” to expand money in circulation
What do we call bank’s money making model? Fractional Reserve Banking System
How do banks make money? Loaning out excess reserves
What are the main assets in a bank’s ledger sheet? required reserves, excess reserves, and loans
What are the main liabilities in a bank’s ledger sheet? Demand deposits
What do you use to determine the money multiplier? 1/Reserve Rate
Why do banks have a money multiplier? They loan out all deposits except for the reserves and those loans go into other banks who do the same thing
If Sally deposits $1,000 into her saving account, why can’t we use the full amount to determine the money multiplier? Part of the money has to be held by the bank in reserve before the remainder can be lent out
If you put $1,000 in your bank which had a 10% reserve requirement, how would their ledger change? Demand deposits would go up $1K, required reserves would go up $100, and excess reserves would go up $900
What are economists normally trying to control when determining the amount of money in circulation? Inflation and unemployment
What is on the X axis of the money demand model? Quantity of money
What is on the Y axis of the money demand model? Nominal interest rates
If aggregate demand is faster than LRAS what could the Fed do to slow the inflationary gap? Sell bonds/securities on the open market
What can a decrease in money supply do to an AD/AS chart? Shift demand to the left, lowering GDP and prices
What is one way the government can lower interest rates? Buy bonds which increases the money supply
What is one result of lowering interest rates? In increases investment which raises GDP and aggregate demand
Define “discount rate:” the interest rate that the Fed charges commercial banks.
What should the Fed do with the discount rate if they increase the money supply? Decrease the discount rate
What is they want to increase the money supply? Duh, decrease the discount rate
Define “reserves:” percentage of deposits banks must hold on to
What could the FED do in recession to the reserve rate to expand money in the market? Decrease the “reserve rate” to expand money in circulation
What do we call bank’s money making model? Fractional Reserve Banking System
How do banks make money? Loaning out excess reserves
What are the main assets in a bank’s ledger sheet? required reserves, excess reserves, and loans
What are the main liabilities in a bank’s ledger sheet? Demand deposits
What do you use to determine the money multiplier? 1/Reserve Rate
Why do banks have a money multiplier? They loan out all deposits except for the reserves and those loans go into other banks who do the same thing
If Sally deposits $1,000 into her saving account, why can’t we use the full amount to determine the money multiplier? Part of the money has to be held by the bank in reserve before the remainder can be lent out
If you put $1,000 in your bank which had a 10% reserve requirement, how would their ledger change? Demand deposits would go up $1K, required reserves would go up $100, and excess reserves would go up $900
What are economists normally trying to control when determining the amount of money in circulation? Inflation and unemployment
What is on the X axis of the money demand model? Quantity of money
What is on the Y axis of the money demand model? Nominal interest rates
If aggregate demand is faster than LRAS what could the Fed do to slow the inflationary gap? Sell bonds/securities on the open market
What can a decrease in money supply do to an AD/AS chart? Shift demand to the left, lowering GDP and prices
What is one way the government can lower interest rates? Buy bonds which increases the money supply
What is one result of lowering interest rates? In increases investment which raises GDP and aggregate demand
Define “discount rate:” the interest rate that the Fed charges commercial banks.
What should the Fed do with the discount rate if they increase the money supply? Decrease the discount rate
What is they want to increase the money supply? Duh, decrease the discount rate
Quiz Weds 4/6
Quiz 3.4 to 3.6
How is the supply and demand model labeled? Price level on the Y axis, and GDP on the X axis
How do you label the business cycle (boom & bust) model? rGDP on the Y axis and time on the X axis
What is a giveaway in a scenario that they are talking about demand shifts? Anything that will affect spending
What is a giveaway in a scenario that they are talking about supply shifts? Anything that will affect production such as wages, prices of resources, or technology
What are two “stabilizers” the government might do to bring the economy back to full potential output during a recessionary gap? Decrease taxes and increase government spending
As prices go up in the short run, what happens to supply? Quantity supplied increases
As prices go up, what happens to unemployment in the short run? Unemployment goes down
How are input prices different in SRAS v. LRAS? Wages and input prices that were “sticky” become flexible
In the long run as prices go up what do employees (labor) do? Demand higher wages
How is the long-run aggregate supply curve represented? As a vertical line
What does the LRAS represent? An economy operating at “full employment” of potential output
When SRAS shifts back to LRAS what happens to price, quantity, and unemployment? Price levels remain up, while there is no increase in unemployment or quantity supplied
What happens to the PPC curve and the LRAS when unemployment rate goes up and down and why? Nothing because the PPC curve and LRAS represent the natural rate of unemployment (NRU)
What is independent of price level? The LRAS
What happens when government increases spending? Short run aggregate demand shifts to the right, price levels and quantity produced rises
What is it known as when aggregate demand is to the right of the LRAS line? An inflationary gap
What is it called when aggregate demand and aggregate supply are to the left of the LRAS line? A recessionary gap
When we have a positive demand shock (CIGN-X ) what happens? AD shifts right, price level goes up
When we have a positive demand shock (CIGN-X ) what happens? AS shifts right, price level goes down, unemployment decreases
What is one of the largest input costs for suppliers/producers? Labor
What eventually shifts most markets back to Long Run Aggregate Supply in an expansionary market? After prices have gone up workers will demand higher wages, causing producers to decrease their supply
What is “demand-pull” inflation? Consumers increased demand drives up
What is “cost-push” inflation? A supply shock forces producers to increase their prices
Quiz 3.4 to 3.6
How is the supply and demand model labeled? Price level on the Y axis, and GDP on the X axis
How do you label the business cycle (boom & bust) model? rGDP on the Y axis and time on the X axis
What is a giveaway in a scenario that they are talking about demand shifts? Anything that will affect spending
What is a giveaway in a scenario that they are talking about supply shifts? Anything that will affect production such as wages, prices of resources, or technology
What are two “stabilizers” the government might do to bring the economy back to full potential output during a recessionary gap? Decrease taxes and increase government spending
As prices go up in the short run, what happens to supply? Quantity supplied increases
As prices go up, what happens to unemployment in the short run? Unemployment goes down
How are input prices different in SRAS v. LRAS? Wages and input prices that were “sticky” become flexible
In the long run as prices go up what do employees (labor) do? Demand higher wages
How is the long-run aggregate supply curve represented? As a vertical line
What does the LRAS represent? An economy operating at “full employment” of potential output
When SRAS shifts back to LRAS what happens to price, quantity, and unemployment? Price levels remain up, while there is no increase in unemployment or quantity supplied
What happens to the PPC curve and the LRAS when unemployment rate goes up and down and why? Nothing because the PPC curve and LRAS represent the natural rate of unemployment (NRU)
What is independent of price level? The LRAS
What happens when government increases spending? Short run aggregate demand shifts to the right, price levels and quantity produced rises
What is it known as when aggregate demand is to the right of the LRAS line? An inflationary gap
What is it called when aggregate demand and aggregate supply are to the left of the LRAS line? A recessionary gap
When we have a positive demand shock (CIGN-X ) what happens? AD shifts right, price level goes up
When we have a positive demand shock (CIGN-X ) what happens? AS shifts right, price level goes down, unemployment decreases
What is one of the largest input costs for suppliers/producers? Labor
What eventually shifts most markets back to Long Run Aggregate Supply in an expansionary market? After prices have gone up workers will demand higher wages, causing producers to decrease their supply
What is “demand-pull” inflation? Consumers increased demand drives up
What is “cost-push” inflation? A supply shock forces producers to increase their prices
Quiz Weds 3/30:
What is the formula for the spending / expenditure multiplier? 1/1-MPC or 1/MPS
If an economy is not producing at full capacity, what can the government do? Cut taxes or increase spending
What is the equation for the tax multiplier? –(MPC/1-MPC) or –(MPC/MPS)
How is an increase in aggregate short run aggregate supply represented on the curve? A rightward shift
What are the “determinants” or shifters of short-run aggregate supply (SRAS)? Input costs, increases in productivity, and governmental policies
What is one of the biggest input costs for producers? Labor
What are “sticky” in the short run supply? Wages & input costs
If wages go down in an economy what happens to the SRAS (short-run aggregate supply) curve? It shifts to the right
What happens if the price of oil goes up in an industry that relies on that as an input cost? It shifts to the left
If the government adds more regulations to manufactures what happens to the SRAS curve? It shifts left
Rather than thinking about how wages effect aggregate supply, what should we consider changes for the impact of a change in wages? Wages impact income and aggregate demand
How do expectations of inflation impact supply production in the short term (SRAS)? If firms expect prices to increase, they will produce more
How is the supply and demand model labeled? Price level on the Y axis, and GDP on the X axis
As prices go up in the short run, what happens to supply? Quantity supplied increases
As prices go up, what happens to unemployment in the short run? Unemployment goes up
How are input prices different in SRAS v. LRAS? Wages and input prices that were “sticky” become flexible
In the long run as prices go up what do employees (labor) do? Demand higher wages
How is the long-run aggregate supply curve represented? As a vertical line
What does the LRAS represent? An economy operating at “full employment” of potential output
What is the formula for the spending / expenditure multiplier? 1/1-MPC or 1/MPS
If an economy is not producing at full capacity, what can the government do? Cut taxes or increase spending
What is the equation for the tax multiplier? –(MPC/1-MPC) or –(MPC/MPS)
How is an increase in aggregate short run aggregate supply represented on the curve? A rightward shift
What are the “determinants” or shifters of short-run aggregate supply (SRAS)? Input costs, increases in productivity, and governmental policies
What is one of the biggest input costs for producers? Labor
What are “sticky” in the short run supply? Wages & input costs
If wages go down in an economy what happens to the SRAS (short-run aggregate supply) curve? It shifts to the right
What happens if the price of oil goes up in an industry that relies on that as an input cost? It shifts to the left
If the government adds more regulations to manufactures what happens to the SRAS curve? It shifts left
Rather than thinking about how wages effect aggregate supply, what should we consider changes for the impact of a change in wages? Wages impact income and aggregate demand
How do expectations of inflation impact supply production in the short term (SRAS)? If firms expect prices to increase, they will produce more
How is the supply and demand model labeled? Price level on the Y axis, and GDP on the X axis
As prices go up in the short run, what happens to supply? Quantity supplied increases
As prices go up, what happens to unemployment in the short run? Unemployment goes up
How are input prices different in SRAS v. LRAS? Wages and input prices that were “sticky” become flexible
In the long run as prices go up what do employees (labor) do? Demand higher wages
How is the long-run aggregate supply curve represented? As a vertical line
What does the LRAS represent? An economy operating at “full employment” of potential output
Quiz Weds 3/9:
Quiz: Unit 2.5 Costs of Inflation ANSWERS
Unit 2.6 Real v. Nominal GDP ANSWERS
Quiz: Unit 2.5 Costs of Inflation ANSWERS
- Who are lenders?
- Who are borrowers?
- Who does inflation hurt?
- Who does inflation benefit?
Unit 2.6 Real v. Nominal GDP ANSWERS
- Define Nominal GDP:
- Define Real GDP:
- Why is Real GDP better than Nominal GDP?
- What is the GDP Deflator?
- What equation is used to calculate the GDP Deflator?
- What equation is used to calculate the Nominal GDP?
Quiz Friday 3/11:
Quiz 3.1- 3.2
Define Aggregate Demand- All the goods & services (real GDP) that buyers are willing and able to purchase at different price levels. What are the reasons why the Aggregate demand curve is downward sloping?
Explain the Foreign trade effect- When U.S. price level rises, foreign buyers purchase fewer U.S. goods and Americans buy more foreign goods.
What are the Shifters of Aggregate demand?
Define Marginal Propensity to Consume- How much people consume rather than save when there is a change in disposable income.
What is the equation for Marginal Propensity to consume: MPC= Change in consumption/ change in disposable income
Define Marginal Propensity to Save- How much people save rather than consume when there is a change in disposable income.
What is the equation for Marginal Propensity to Save? MPS= Change in savings change in disposable income
MPC and MPC are always expressed as: A fraction or decimal
The Spending multiplier is equal to? 1/MPS OR 1/1-MPC
The total change in GDP can be found by: Initial change in Spending X Multiplier
Quiz 3.1- 3.2
Define Aggregate Demand- All the goods & services (real GDP) that buyers are willing and able to purchase at different price levels. What are the reasons why the Aggregate demand curve is downward sloping?
- The Wealth Effect (real balance effect)
- Interest Rate effect
- Foreign trade effect
Explain the Foreign trade effect- When U.S. price level rises, foreign buyers purchase fewer U.S. goods and Americans buy more foreign goods.
What are the Shifters of Aggregate demand?
- Change in consumer spending
- Change in investment spending
- Change in government spending
- Change in net exports
Define Marginal Propensity to Consume- How much people consume rather than save when there is a change in disposable income.
What is the equation for Marginal Propensity to consume: MPC= Change in consumption/ change in disposable income
Define Marginal Propensity to Save- How much people save rather than consume when there is a change in disposable income.
What is the equation for Marginal Propensity to Save? MPS= Change in savings change in disposable income
MPC and MPC are always expressed as: A fraction or decimal
The Spending multiplier is equal to? 1/MPS OR 1/1-MPC
The total change in GDP can be found by: Initial change in Spending X Multiplier
Quiz Thurs 3/3:
Topic 2.4 Prices and Indices and Inflation Quiz
Define inflation – the rising general level of prices and it reduces the “purchasing power” of money.
Define deflation and name some of its effects - Decrease in general prices or a negative inflation rate. Deflation is bad because people will hoard money and assets. This decreases consumer spending & GDP.
How do you calculate the cost of the basket? Add up the prices of all items in the basket in a given year. The quantity of each product much be equal to each other.
What is the equation for CPI? Price of market basket/ price of market basket in base year x100
What is the equation for inflation rate? New # - old #/ old # x100
What are the three problems that result from CPI? Substitution bias, new products, and product quality.
What is the CPI for the base year? 100
What is the government’s role in the economy? To prevent unemployment and prevent inflation at the same time.
What will happen if the government tries to prevent inflation? It slows down the economy and we will have unemployment.
What will happen in the government tries to prevent unemployment? If the government overheats the economy, we will have inflation.
Topic 2.4 Prices and Indices and Inflation Quiz
Define inflation – the rising general level of prices and it reduces the “purchasing power” of money.
Define deflation and name some of its effects - Decrease in general prices or a negative inflation rate. Deflation is bad because people will hoard money and assets. This decreases consumer spending & GDP.
How do you calculate the cost of the basket? Add up the prices of all items in the basket in a given year. The quantity of each product much be equal to each other.
What is the equation for CPI? Price of market basket/ price of market basket in base year x100
What is the equation for inflation rate? New # - old #/ old # x100
What are the three problems that result from CPI? Substitution bias, new products, and product quality.
What is the CPI for the base year? 100
What is the government’s role in the economy? To prevent unemployment and prevent inflation at the same time.
What will happen if the government tries to prevent inflation? It slows down the economy and we will have unemployment.
What will happen in the government tries to prevent unemployment? If the government overheats the economy, we will have inflation.
Quiz Weds 2/23:
Quiz: Unit 2.1 The Circular Flow and GDP ANSWERS
What is the circular flow diagram?
A visual model of the economy that shows how dollars flows through markets among households and firms
What does the Circular Flow Diagram represent?
How goods, services, & money move through our economy.
Who are the two major “actors” in the Circular Flow Diagram?
Households and Firms
What is the Private Sector?
Part of the economy that is run by individuals and businesses.
What is the Public Sector?
Part of the economy that is controlled by the government.
What are Factor Payments?
Payment for the factors of production, namely rent, wages, interest, and profit.
What are Transfer Payments?
When the government redistributes income.
What is Gross Domestic Product (GDP)?
It is the dollar value of all final goods and services produced within a country in one year.
What are the 3 types of GDP?
What equation is used to find the GDP Per Capita?
GDP/ Population
What are the 4 Components of GDP?
What equation is used to calculate GDP?GDP (Y) = C+I+G+(X-M)
Quiz: Unit 2.1 The Circular Flow and GDP ANSWERS
What is the circular flow diagram?
A visual model of the economy that shows how dollars flows through markets among households and firms
What does the Circular Flow Diagram represent?
How goods, services, & money move through our economy.
Who are the two major “actors” in the Circular Flow Diagram?
Households and Firms
What is the Private Sector?
Part of the economy that is run by individuals and businesses.
What is the Public Sector?
Part of the economy that is controlled by the government.
What are Factor Payments?
Payment for the factors of production, namely rent, wages, interest, and profit.
What are Transfer Payments?
When the government redistributes income.
What is Gross Domestic Product (GDP)?
It is the dollar value of all final goods and services produced within a country in one year.
What are the 3 types of GDP?
- Nominal GDP, Actual numbers in today’s dollars
- Real GDP, Adjusted for inflation
- Per Capita GDP, Average GDP per person
What equation is used to find the GDP Per Capita?
GDP/ Population
- What are the three ways of calculating GDP?
- Expenditures Approach
- Income Approach
- Value-added Approach
What are the 4 Components of GDP?
- Consumer Spending (C)
- Business Investment (I)
- Government Spending (G)
- Net Exports (Exports (X) minus Imports (M))
What equation is used to calculate GDP?GDP (Y) = C+I+G+(X-M)
- What 5 major reasons cause different countries to have different GDPs?
- Economic System
- Rule of Law
- Capital Stock
- Human Capital
- Natural Resources
Quiz Tuesday March 1:
Quiz: Unit 2.3 Unemployment ANSWERS
Define Unemployment?
Workers that are actively looking for a job but are not working
What is the Unemployment Rate?
The percent of people in the labor force who want a job are not working.
What is Frictional Unemployment?
Temporary unemployment or being between jobs
What is Structural Unemployment?
Changes in the labor force make some skills obsolete.
What is Cyclical Unemployment?
Unemployment caused by a recession.
Define Natural Rate of Unemployment (NRU):
The amount of unemployment that exists when the economy is healthy and growing.
How is the Natural Rate of Unemployment calculated?
Frictional plus structural unemployment
Define Full Employment Output:
The Real GDP created when there is no cyclical unemployment.
What are some criticisms of the Unemployment Rate?
What equation labor force participation rate? Labor force divided by population 16 and older x 100
Quiz: Unit 2.3 Unemployment ANSWERS
Define Unemployment?
Workers that are actively looking for a job but are not working
What is the Unemployment Rate?
The percent of people in the labor force who want a job are not working.
What is Frictional Unemployment?
Temporary unemployment or being between jobs
What is Structural Unemployment?
Changes in the labor force make some skills obsolete.
What is Cyclical Unemployment?
Unemployment caused by a recession.
Define Natural Rate of Unemployment (NRU):
The amount of unemployment that exists when the economy is healthy and growing.
How is the Natural Rate of Unemployment calculated?
Frictional plus structural unemployment
Define Full Employment Output:
The Real GDP created when there is no cyclical unemployment.
What are some criticisms of the Unemployment Rate?
- Discouraged Workers
- Underemployed Workers
- Race/ Age Inequalities
What equation labor force participation rate? Labor force divided by population 16 and older x 100
Quiz Tuesday Feb 8:
Define supply?
The different quantities of a good that sellers are willing and able to sell at different prices
What is the Law of Supply?
There is a direct relationship between price and quantity supplied
What are the 5 Shifters of Supply?
A change in price doesn’t shift the curve. It only causes movement along the curve.
How does the supply curve slope?
Upward
What is a supply schedule?
A table showing the relationship between the price of a good or serve and the quantity supplied when all other determinants are equal
What is the Equilibrium Price?
The price at which supply and demand are in balance.
What are Disequilibrium Prices?
The price at which supply and demand are not equal.
When does a Surplus occur?
When the price of a good or service is higher than the equilibrium price.
When does a shortage occur?
When the price of a good or service is lower than the equilibrium price
What roles does price play in a market economy?
Quantity Demanded > Quantity Supplied (Qd>Qs)
What equation displays a Market Surplus?
Quantity Demanded < Quantity Supplied (Qd<Qs)
Define supply?
The different quantities of a good that sellers are willing and able to sell at different prices
What is the Law of Supply?
There is a direct relationship between price and quantity supplied
What are the 5 Shifters of Supply?
- Resources (including prices)
- Number of Sellers
- Technology
- Government Action
- Expectations of Future Profit
A change in price doesn’t shift the curve. It only causes movement along the curve.
How does the supply curve slope?
Upward
What is a supply schedule?
A table showing the relationship between the price of a good or serve and the quantity supplied when all other determinants are equal
What is the Equilibrium Price?
The price at which supply and demand are in balance.
What are Disequilibrium Prices?
The price at which supply and demand are not equal.
When does a Surplus occur?
When the price of a good or service is higher than the equilibrium price.
When does a shortage occur?
When the price of a good or service is lower than the equilibrium price
What roles does price play in a market economy?
- They act as signals to consumers and producers
- They encourage efficient production
- They determine who will receive goods and services
Quantity Demanded > Quantity Supplied (Qd>Qs)
What equation displays a Market Surplus?
Quantity Demanded < Quantity Supplied (Qd<Qs)
Quiz Weds Feb 2:
Define an economy with the “absolute advantage:” the one that can produce the most output OR requires the least amount of inputs
Define an economy with the “comparative advantage:” the one with the lowest opportunity cost
When comparing two products – apples and oranges – how would you determine the opportunity cost of apples? Divide apples by oranges or apples/oranges
How do “gains from trade” occur? When two countries specialize in commodities in which they have a comparative advantage
How do “gains from trade” impact a countries PPC chart? They can consume at an amount that was previously unattainable or beyond their PPC line
When determining beneficial trade for “output questions” when is usually being compared? Number of units being produced
When determining beneficial trade for “input questions” when is usually being compared? Number of hours or workers required to produce a good
For output questions what acronym does Clifford use? OOO – Other goes over
For input questions what acronym does Clifford use? IOU – Other goes under
Modeling – I will give you models/tables like the ones we did in class (or in your AMSCO book) – and you will be required to calculate the comparative advantage of each product and the lowest and highest price an economy would trade at
Define an economy with the “absolute advantage:” the one that can produce the most output OR requires the least amount of inputs
Define an economy with the “comparative advantage:” the one with the lowest opportunity cost
When comparing two products – apples and oranges – how would you determine the opportunity cost of apples? Divide apples by oranges or apples/oranges
How do “gains from trade” occur? When two countries specialize in commodities in which they have a comparative advantage
How do “gains from trade” impact a countries PPC chart? They can consume at an amount that was previously unattainable or beyond their PPC line
When determining beneficial trade for “output questions” when is usually being compared? Number of units being produced
When determining beneficial trade for “input questions” when is usually being compared? Number of hours or workers required to produce a good
For output questions what acronym does Clifford use? OOO – Other goes over
For input questions what acronym does Clifford use? IOU – Other goes under
Modeling – I will give you models/tables like the ones we did in class (or in your AMSCO book) – and you will be required to calculate the comparative advantage of each product and the lowest and highest price an economy would trade at
Quiz Thursday 1/20
Define “scarcity” - Scarcity- we have unlimited wants but limited resources.
What is the difference between “positive and “normative” statements? Positive are based and facts and normative are based on opinion
What question is at the center of “thinking at the margin”? How much is the cost of one more
What are the two choices that must be considered when “thinking at the margin?” Marginal benefit vs. marginal cost
What equation is used to rational the choices of thinking at the margin? MB > MC
Due to scarcity, choices must be made. Every choice has a cost. What do we call that choice in Macro? A trade-off
Define opportunity cost: most desirable alternative given up when you make a choice.
Define capital goods: goods used to make consumer goods
Give an example of a capital good: a new machine
What are the four factors of production?
Define “scarcity” - Scarcity- we have unlimited wants but limited resources.
What is the difference between “positive and “normative” statements? Positive are based and facts and normative are based on opinion
What question is at the center of “thinking at the margin”? How much is the cost of one more
What are the two choices that must be considered when “thinking at the margin?” Marginal benefit vs. marginal cost
What equation is used to rational the choices of thinking at the margin? MB > MC
Due to scarcity, choices must be made. Every choice has a cost. What do we call that choice in Macro? A trade-off
Define opportunity cost: most desirable alternative given up when you make a choice.
Define capital goods: goods used to make consumer goods
Give an example of a capital good: a new machine
What are the four factors of production?
- Land
- Capital
- Labor
- Entrepreneurs
Quiz Tuesday 1/25:
What is the Production Possibilities Curve (PPC)?A model that helps economists think about trade-offs every economy must face
What is the Constant Opportunity Cost? Resources are easily adaptable for producing either good
What is the Law of Increasing Opportunity Cost? As you produce more of any good, the opportunity cost will increase
What goes on the X-axis of the PPC graph? Consumer Goods
What goes on the Y-axis of the PPC graph? Capital Goods
How do these events shift the PPC?
What is the Production Possibilities Curve (PPC)?A model that helps economists think about trade-offs every economy must face
What is the Constant Opportunity Cost? Resources are easily adaptable for producing either good
What is the Law of Increasing Opportunity Cost? As you produce more of any good, the opportunity cost will increase
What goes on the X-axis of the PPC graph? Consumer Goods
What goes on the Y-axis of the PPC graph? Capital Goods
How do these events shift the PPC?
- Recession: Shifts left
- Global Event: Shifts left
- Technology: Shifts right
- Quality: Shifts right
- Economic Growth: Shifts right
- Change in resource quantity or quality
- Change in Technology
- Change in Trade