Production Possibilities Frontier -Principles of Macroeconomic

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Short-run Approach, Production Possibilities Frontier – PPF, Economics Test – Final

The key terms in this Macroeconomics course include Short-run Approach, Production Possibilities Frontier – PPF, Decision-Making, Economics test, production possibilities, employment, Principles of Macroeconomics.


Which of the following would be consistent with taking the short-run approach to decision-making?

Studying for an economics test instead of going to a party

Going to the gym instead of watching TV

Eating a salad for dinner when it is your goal to eat healthily

Buying a new leather jacket instead of saving for retirement – correct

Explanation: In the short run, the individual is valuing the present over the future. Purchasing a leather jacket instead of saving for retirement is valuing future consumption over the value of the initial savings and the return on that savings in the long run

Where would you plot full employment on a production possibilities frontier if all other resources are being used efficiently?

a point on the PPF – correct

a point below the PPF

It will depend on how much full employment exists; the point could be on or inside the PPF.

a point beyond the PPF

Explanation: Full employment is a characteristic of all points on the production possibilities frontier. For all points on the PPF, all resources available are being used efficiently.

Suppose workers attend several skill-building workshops, increasing their labor productivity. How is this represented by a production possibilities frontier?

The entire PPF shifts out. – correct

The economy moves from a point below the PPF to a point on the PPF.

The entire PPF shifts in.

The economy moves from a point on the PPF to a point beyond the PPF.

Explanation: If workers become more skilled they can produce more goods. An increase in skills is an increase in human capital, a resource and input in the production of goods. When resources increase, the entire PPF shifts out.

Suppose that a politician wants to build more production facilities for solar power and wind power. At the same time, the politician is unwilling to cut any other programs.  If the resources that would be used to produce the solar and wind power facilities are already being efficiently used in other programs, where is the point the politician is trying to reach located on the production possibilities frontier?

this point does not exist

a point inside the frontier

point on the original frontier

a point outside the frontier – correct

Explanation: If the resources are already being efficiently used in other programs (and the politician cannot raise the funds from another source), then it will be impossible to build additional facilities given the existing technology and resources available. The politician could build more wind and solar power facilities, but not without decreasing production of one or more of the goods currently in production. Producing more wind and solar power facilities without decreasing current production requires more resources or technology, represented by a point outside of the current PPF.

Which of the following would be consistent with taking the short-run approach to decision-making?

Studying for an economics test instead of going to a party

Going to the gym instead of watching TV

Eating a salad for dinner when it is your goal to eat healthily

Buying a new leather jacket instead of saving for retirement – correct
Explanation: In the short run, the individual is valuing the present over the future. Purchasing a leather jacket instead of saving for retirement is valuing future consumption over the value of the initial savings and the return on that savings in the long run

Where would you plot full employment on a production possibilities frontier if all other resources are being used efficiently?

a point on the PPF – correct

a point below the PPF

It will depend on how much full employment exists; the point could be on or inside the PPF.

a point beyond the PPF

Explanation: Full employment is a characteristic of all points on the production possibilities frontier. For all points on the PPF, all resources available are being used efficiently.

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