Economics
If government purchases go up in the short run, what happens to GDP? Show this graphically.
If the government purchases go up, the GDP will increase during that time but when the purchases return to their normal amount, the GDP will go back to being the same.
If consumption and government purchases go up, what happens to GDP in the long run? Why? How would this look in a graph?
the graph would look like this because the consumption and government purchases have increased in the long run and hence GDP increase and moves to a new level.
Running Head: ECONOMICS
ECONOMICS
Prices p2 B
P1 A D2
S D1
Q1 Q2 quantity
The production possibility frontier is a curve that shows the various amounts of two commodities that can be produced with a fixed amount of inputs. It is a concave shape that shows the scarcity, efficiency and technology.
ppf
food
X Y
Clothing
Y – Represents the area of scarcity, where by production at that level is not possible.
The PPF, shows the efficiency of the factors of production that there full maximization of the resources available in the economy
X – represents inefficiencies, the improvement in the level of technology are to maximize use of the resources available to cater for the market demands of the commodities.
Opportunity cost, this is the quantity of food produced that will be fore gone so that there can be production of more clothing. The quantity of food produced will decrease at the expense of production of more clothes.
Quantity of food
Produced 3
2
1
0 b c Quantity of clothing produced
Increasing the quantity of clothing produced from point b to point c means that the quantity of food produced reduces from point 3 to point 2. The opportunity cost for producing extra ( c- b) quantity of clothing is (3 – 2) quantity of food.
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