1. What do economists mean by the Production Possibilities Frontier and Full Pot
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Question
1. What do economists mean by the Production Possibilities Frontier and Full Potential GDP? Identify the strong industries and sectors (such as pharmaceuticals or manufactured exports) – national/international - currently giving strength to Aggregate Demand. What are the forces behind these? Identify the national and international forces acting as a brake on the US economy at present.
2. Describe the four phases/turning points of the Business cycle. What do economists mean by the “Natural Rate of Unemployment” and what do economists agree is its upper and lower range in the US? At what stage of the Business Cycle does the US economy attain this rate? What are the implications of this rate for consumers and producers?
3. The current unemployment rate for the US is 4.9% (July 2016). After a long period of gradually rising GDP with no increase in wage rates, average hourly wages rates have finally begun to rise – they only rose 5% year over year in January 2016. Why do you think that wage rates did not rise before? Why do you think they are rising slowly now?
Explanation / Answer
1) A production possibility Frontier or Production possibility curve is a method of exhibiting possible combinations of two goods that the economy can produce given the state of technology and the quantity of resources. An economy that is operating under this curve is underemploying its resources and an economy which is on this curve is using its resources optimally and efficiently. A country cannot lie beyond the PPF
Full potential GDP is the level of output that the economy can produce employing its resources to their maximum efficiency. It is also known as full employment level. However, it does not mean that there is no unemployment at this level but it is always frictional in nature
Energy is one of the sector that is currently giving boost to the economy's production of oil and gas. The production has increased by 168% from 2010 to 2013. Manufacturing is another sector that is actually contributing around $2.09 trillion in GD. Surprisingly agriculture has showed tremendous improvement by supplying and exporting $152.5 billion worth of agricultural goods in 2015
Minimum wage which is expected to increase after the new presidential election is going to be one of the most important domestic factor that will act as a brake on the economy. Another factor is the immigration of employees in the United States which has created havoc in the political arena. Outsourcing done by the domestic companies in United States is another major factor that impedes its growth.
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