However, although investment is important for causing an outward shift of the PPF and contributing towards long-term economic growth, there are also some possible downsides to consider. This can be shown on a PPF … If the economy is operating below capacity (inside the production possibility frontier), short run growth is possible without any increase in productive capacity; it is simply a matter of employing unused resources. The following Table shows a farm's production possibilities. We have started our discussion of development by addressing very broad issues relating to the concept of development. Technological progress 3. increase in physical capital or labour Economic growth causes the PPF to a. shift leftward. 2. Economic growth and the PPF (2) Syllabus: Explain, using a PPC diagram, economic growth as an increase in production possibilities caused by factors including increases in the quantity and quality of resources, leading to outward PPC shifts. Economic growth is illustrated by the outward shift in the PPF. We indicated that economists often use real GDP per capita as a proxy for the standard of living. Segment 2 of The Production Possibilities Frontier uses the production possibilities frontier to explain key economic ideas such as why an economy might have underemployed resources but later expand, and how changes in productivity can lead to economic growth. Economic Growth. Indeed 'development' and 'economic development' have often been treated as synonymous concepts. For example, an increase in the spending on education will improve the quality of the future labour force. 5.1.3 Economic growth vs Economic Recovery - both result in an increase in GDP and therefore both cause a movement from the current point on the PPF outwards. That creates an asset bubble. For instance, a rise in consumption resulting from increased consumer confidence or a cut in income tax may encourage firms to increase their output. This may be due to any of the … This simply means an increase in GDP in a given period of time. How does the PPF show economic growth? b. shift rightward. It is an increase in output as measured by real GDP/ national income. Increase in the availability of resources: a. labor supply b. capital stock c. trade d. technology e. improvements in the rules of the game The economic growth of a country can be measured by comparing the level of Gross National Product (GNP) of a year with the GNP of the previous year. This shifts the PPF to the right of its original position. Remember PPC and PPF are the same thing Economic Growth. The production possibilities frontier (PPF) does not say anything about the demand for either of the products. A shift of the PPF inwards indicates economic decline while a shift outwards indicates economic growth. This topic video looks at the main supply-side causes of economic growth and the effect of growth on a country's production possibility frontier (PPF). Economic Growth using PPF Diagrams Economic Growth A rise in a country’s productive capacity causes the PPF to shift out from PPF1 to PPF2 and this then allows increased supply both of consumer and capital goods. Economic growth is the increase in the level of potential output in the economy over a period of time and it can be shown by a rightward shift in the production possibility frontier (PPF) (Graph 1) and this will also shift the long run aggregate supply (LRAS) curve to … Economic growth Economic growth has two meanings: 1. Economic analysis provides an insight into the essentials of an economy. 1. shift inward. (a) The opportunity cost of moving from point b to c is 10 units of butter. It must be increases in physical or human capital, or technological improvements. The PPF may shift inwards or outwards. For Economic Growth to occur there must be a shift in LRAS. 2. shift outward. The coronavirus recession is an economic recession happening across the world economy in 2020 due to the COVID-19 pandemic. Firstly, and most commonly, growth is defined as an increase in the output that an economy produces over a period of time, the minimum being two consecutive quarters. Graph showing increase in PPF. AD= C + I + G + X- M. C= Consumer spending; … Key Factors Affecting Long Run Economic Growth Investment Productivity Labour supply Research Innovation Enterprise 6. This is not an increase in Economic Growth. These factors may include increased investment in assets and infrastructure to boost the efficiency of production and transportation of goods. Causes and Consequences of Economic Growth! For economic growth to take place either, or both, of the following must happen. Analysts watch economic growth to discover what stage of the business cycle the economy is in. Try It. c. remain constant. The Phases of Economic Growth . Economic Growth using PPF Diagrams Economic Growth A rise in a country’s productive capacity causes the PPF to shift out from PPF1 to PPF2 and this then allows increased supply both of consumer and capital goods. Causes of economic growth. Which of the following statements is false? 4. go from a straight line to a curve thank you What causes economic growth then? The most well-known and frequently tracked is the gross domestic product … If growth is too far beyond a healthy growth rate, it overheats. If there is an increase in land, labour or capital or an increase in the productivity of these factors, then the PPF curve can shift outwards enabling a better trade-off. Economic Growth and the Standard of Living. Answer to: What causes the PPF to shift outward? 17. The country's economic growth is uniformly negative over both the sectors (agricultural and industrial) between the years 2006 and 2007. (d) Along a bowed out PPF as more of a good is produced, the opportunity cost of producing it decreases. Long run economic growth is determined by a change in the quantity or quality of factors of production within the economy. The production possibility curve depicts the total number of goods and services that can be produced in an economy given the level of resources in the economy, the productions possibility curve helps check whether an economy has idle resources and if an economy produces optimally then this will result into economic growth. - The ratio of consumer goods to capital goods is how the production possibilities frontier shifts. An increase in resources (natural, human and or capital) available to a country - Quantity An increase in the efficiency with which a country's resources are used in the production process. The second meaning of economic growth is an increase in what an economy can produce if it is using all its scarce resources. Global stock markets experienced their worst crash since 1987, and in the first three months of 2020 the G20 economies fell 3.4% year-on-year. With consumption goods on one axis and capital goods on the other, show how the combination of goods selected this period affects the PPF in the next period. a. This is when the economy is growing in a sustainable fashion. As you well know, Real GDP can increases because of a rightward shift of AD or SRAS, both representing short-run shifts. Economic growth 2. Economists and statisticians use several methods to track economic growth. Three Factoors that can cause the ppf to shift outwards are 1. (b) Economic growth causes the PPF to shift outward (c) From a point within the PPF rearranging production and producing more of all goods is possible. b. For example, if someone developed a faster computer, or a more efficient way of manufacturing cars, we might see a shift to the right in the PPF. Then from 2007 to 2008, there has been positive and uniform growth in both sectors, since the PPF has moved outwards. If there is spare capacity in the economy, then an increase in AD will cause a higher level of real GDP. Demand-side causes. 1.2 Economic growth and development. On the PPF curve, it is impossible to increase one choice, without causing less production of the other. Actual economic growth can also be known as demand side economic growth because it is affected by changes in the demand in an economy. The economic growth of a country is possible if strengths and weaknesses of the economy are properly analyzed. If there are only two goods, guns and butter, it is possible to produce more of both goods through economic growth. Sherene; Introduction. It can be achieved by shifting AD (Aggregate demand) to the right by increasing AD, by influencing any of the factors of aggregate demand. Causes of Economic Growth Short Run Economic Growth. What causes the economy to grow? d. go from a straight line to a curve. The PPF has moved inwards. The best phase is expansion. 4. By signing up, you'll get thousands of step-by-step solutions to your homework questions. 3. remain constant. In the short term, economic growth is caused by an increase in aggregate demand (AD). In order to determine demand for the products, you will have to study consumer choice theory in economics. Growth and the PPF: Use the production possibilities frontier (PPF) to demonstrate economic growth. However, much of the literature and thinking about 'development' focuses on economics. In a market economy, the consumer makes all the demand choices. Economic growth causes the PPF to do what? An outward shift from Y3X3 to Y4X4 indicates economic growth. Economic growth shifts the economy's production possibility frontier to the right from its initial location. a. Economic growth is measured by how much gross domestic product, or GDP, increases from one period to the next.GDP is the combined value of all goods and services produced within a … It only addresses the supply side of the economy. Given the increased amount of available resources, or new and better technology, the economy can produce more of both goods. Explain what causes the production possibilities frontier to shift. The most common reason a PPF would shift is because of a change in technology, or because of economic growth. 4. The factors of economic growth are drivers that lead to an increase in a country's capacity for productivity. Shifts in the PPF. 3. An outward shift of the PPF/PPC reflects economic growth. Points A B and C show the points of production. Good A and B are the most efficient, point X shows the point at which resources are not being used efficiently; point Y shows the output that is not attainable with the given inputs. 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