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PPF - Growth Analysis quiz

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  • What does the Production Possibilities Frontier (PPF) represent in economics?
    The PPF represents the maximum production capacity of an economy, showing the potential outputs of capital and consumer goods.
  • What happens to the PPF when there is economic growth?
    Economic growth causes the PPF to shift outward, indicating an increase in the economy's production capacity.
  • Name two types of goods typically shown on the PPF.
    The two types of goods are capital goods and consumer goods.
  • How can an increase in natural resources affect the PPF?
    An increase in the quantity or quality of natural resources can push the PPF outward, expanding potential GDP.
  • What role do human resources play in shifting the PPF?
    An increase in the quantity or quality of human resources, such as more educated or productive citizens, can shift the PPF outward.
  • How does investing in capital goods influence the PPF?
    Investing in capital goods increases future productivity and can push the PPF outward.
  • Why is technological improvement important for the PPF?
    Technological improvements make physical capital more productive, helping to expand the economy's production possibilities.
  • What must happen to demand for an economy to reach its new potential after the PPF shifts outward?
    Demand must match the growth in production capacity; otherwise, there will be excess inventory and underutilized capacity.
  • What is productive efficiency?
    Productive efficiency means using resources in the least costly way to maximize output.
  • What is allocative efficiency?
    Allocative efficiency is using resources to produce the goods and services most desired by citizens.
  • What happens if supply factors increase but demand does not?
    If demand does not increase to match supply, the economy will not reach its new potential, resulting in unsold inventory and underused resources.
  • Why is efficiency important when new resources are discovered?
    Efficiency ensures that new resources are used in a way that maximizes economic growth rather than being wasted.
  • What are the three main factors that must work together for an economy to reach its full potential?
    Supply factors, demand factors, and efficiency must all work together for the economy to reach its full potential.
  • What does an outward shift of the PPF indicate about an economy?
    An outward shift of the PPF indicates that the economy's production capacity has increased.
  • What is the result if only supply factors improve but efficiency is not achieved?
    If efficiency is not achieved, the economy may not reach the new potential output even if supply factors improve.