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PPF - Growth Analysis quiz

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  • What does the production possibilities frontier (PPF) illustrate in economics?
    The PPF shows the maximum output combinations of capital and consumer goods an economy can achieve using its resources efficiently.
  • What happens to the PPF when there is economic growth?
    Economic growth shifts the PPF outward, indicating an increase in the economy's production potential.
  • Name two supply factors that can cause the PPF to shift outward.
    Increases in the quantity or quality of natural resources and human resources can shift the PPF outward.
  • How does an increase in capital goods affect the PPF?
    An increase in capital goods raises future productivity, pushing the PPF outward and expanding potential GDP.
  • Why is technological improvement important for economic growth?
    Technological improvements make resources more productive, allowing the economy to produce more and shifting the PPF outward.
  • What role does demand play in achieving economic growth?
    Demand must match the increased production capacity for the economy to realize its new potential; otherwise, excess supply results.
  • What happens if supply increases but demand does not?
    If demand does not match increased supply, there will be unsold inventory and the economy will not reach its new potential output.
  • What is productive efficiency?
    Productive efficiency means using resources in the least costly way to maximize output.
  • What is allocative efficiency?
    Allocative efficiency is producing the mix of goods and services most desired by society, maximizing citizens' well-being.
  • Why must efficiency accompany supply and demand for economic growth?
    Efficiency ensures resources are used optimally, allowing the economy to reach its full potential output created by supply and matched by demand.
  • What is the opportunity cost represented by the PPF?
    The opportunity cost is the amount of one good that must be given up to produce more of the other good, shown by the slope of the PPF.
  • How does scarcity relate to the PPF?
    Scarcity is reflected in the PPF because resources are limited, so producing more of one good means producing less of another.
  • What does a point inside the PPF represent?
    A point inside the PPF shows underutilization of resources or inefficiency in the economy.
  • What does a point on the PPF curve indicate?
    A point on the PPF indicates that resources are being used efficiently to produce a combination of goods.
  • What is required for an economy to reach a new, higher potential GDP after the PPF shifts outward?
    The economy must have matching demand and operate efficiently to fully realize the increased potential output enabled by supply factors.