Sia
Question
Microeconomics
Posted 5 months ago
Which of the following describe two ways to show economic growth in a graphical model?
Choose 1 answer:
(A) An outward shift of the production possibilities curve (PPC); a shift to the right of the long-run Phillips curve (LRPC)
(B) A movement from the interior of a production possibilities curve (PPC) to the curve; a shift to the right of aggregate demand (AD)
(C) A shift to the right of the long-run aggregate supply (LRAS) curve; a shift to the right of aggregate demand (AD)
(D) A shift to the right of the long-run Phillips curve (LRPC); a shift to the right of the short-run Phillips curve (SRPC)
(E) A shift to the right of the long-run aggregate supply (LRAS) curve; a shift outward of the production possibilities curve (PPC)
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Answer from Sia
Posted 5 months ago
Solution
a
Outward Shift of PPC: An outward shift of the production possibilities curve (PPC) represents an increase in an economy's capacity to produce goods and services. This shift indicates that the economy can produce more of both goods, reflecting economic growth
b
Rightward Shift of LRAS: A shift to the right of the long-run aggregate supply (LRAS) curve indicates an increase in the economy's potential output. This shift suggests that the economy can produce more at every price level, which is a sign of economic growth
c
Rightward Shift of AD: A shift to the right of the aggregate demand (AD) curve represents an increase in the total demand for goods and services in the economy. While this can lead to higher output in the short run, it does not necessarily indicate long-term economic growth
d
Rightward Shift of LRPC: A shift to the right of the long-run Phillips curve (LRPC) would indicate a higher natural rate of unemployment, which is not a sign of economic growth
e
Rightward Shift of SRPC: A shift to the right of the short-run Phillips curve (SRPC) indicates higher inflation for a given level of unemployment, which does not represent economic growth
Answer
(E) A shift to the right of the long-run aggregate supply (LRAS) curve; a shift outward of the production possibilities curve (PPC)
Key Concept
Economic growth is best represented by an outward shift of the PPC and a rightward shift of the LRAS curve.
Explanation
Both the outward shift of the PPC and the rightward shift of the LRAS curve indicate an increase in the economy's capacity to produce goods and services, reflecting long-term economic growth.
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