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8:38 AM Fri Jan 25 95% KHomework1 Homework 1.pdf Short Answer Questions I. Consider an economy that produces Military goods and Consumer goods, the PPF and the case that more recourses become available are given by the graph below. You are asked to identify how the followings affect the PPF. In order to get full mark, you have to figure out both the moving section (military goods section or consumer goods section) and the direction (outward or inward). Example: The population becomes more educated over time as the number of high school dropouts falls and the number of college graduates rises. Answer: both military goods section and consumer goods section would move outwards ) The unemployment rate declines from 7.3 to 4.5 percent of the labor force (which is still higher than the rate when full employment happens). b) Advances in telecommunications and new technology significantly contribute to economic growth over time c) The Congress and the President decide to allocate more resources to national defense. d) A nation participates in increased international trade with other nations of the world. ー Dashboard CalendarTo Do Notifications Inbox

Answer 1

Q.1.

a) Full employment is the level where all resources are used. Thus, if unemployment rate falls below this level, the production wont be more as all resources are already used at full employment.

Here, the unemployment rate falls, but which is still more than full employment. This implies, the scope of increasing the production is still there as the economy has not arrived at full employment yet. Hence, with decrease in unemployment rate, yet more than full employment rate, both the goods will be produced more. Thus, both militiary and consumer good section would move outward.

b) Advances in telecommunication and new technology will improve production of both goods. It implies that because of developed technology, more of both goods can be produced without increasing resources. Thus, both militiary and consumer good section would move outward.

c) More resources allocated to defense will require drawing some resources from consumer goods, so that more of defense goods (militiary goods) can be produced. Thus, only the production of militiary goods will increase and the production of consumer goods will reduce. Therefore, militiary good section would move outward and consumer good section will move inward.

d) With participating more in international trade, the nation will have to produce more of consumer goods so that the increased participation can be supported. However, to produce more of consumer goods more resources will be required, which will be drawn from the production of militiary goods. Thus, only the production of consumer goods will increase and the production of militiary goods will reduce. Therefore, consumer good section would move outward and militiary good section will move inward.

e) Advancement in technology that will only enhance the production of militiary goods will increase the production of militiary goods without increasing the alloted resources. And as this technology only enhances militiary goods, there will be no influence on production of consumer goods. Therefore, only the militiary section will move outward.