Understanding Economic Models

What is the Production Possibility Curve (PPC)?

• A graphical representation of maximum production

• A model showing economic growth

• A diagram of resource allocation

• A chart of consumer behavior

What are the key assumptions of the PPC?

• The economy produces only two goods.

• Available resources are fixed.

• Technology remains constant.

• All resources are used efficiently.

What does a concave PPC indicate?

• Increasing opportunity cost

• Constant opportunity cost

• Decreasing opportunity cost

• Efficient production

What does an outward shift in the PPC represent?

• Economic growth

• Economic decline

• Constant resources

• Inefficient production

What is opportunity cost?

• The next best alternative foregone

• The cost of production

• The price of goods

• The value of resources

What does the Circular Flow Diagram illustrate?

• Flow of money and goods

• Economic growth

• Resource allocation

• Market competition

What are the key components of the Circular Flow Model?

• Households and businesses

• Product and factor markets

• Government and foreign sectors

• All of the above

What is the business cycle?

• Fluctuations in economic activity

• A model of resource allocation

• A representation of market trends

• A diagram of consumer behavior

What happens during the expansion phase of the business cycle?

• Rising GDP and increasing employment

• Declining GDP and rising unemployment

• Maximum economic activity

• Lowest point of economic activity

What are demand-side factors in business cycle fluctuations?

• Changes in consumer confidence

• Changes in productivity

• Government policies

• External shocks