How would the Great Recession of 2007–2009 be pictured in a typical production possibilities curve?
In a typical production possibilities curve, consumer goods would be on one axis and capital goods on another axis. A curved line bowed out from the origin would represent production possibilities for the United States. During the Great Recession of 2007–2009, the U.S. economy was not located on the frontier of its production possibilities, but rather at an interior point inside its production possibilities. This could be represented by a point similar to A. This point indicates that the U.S. economy was not producing what it was capable of producing had there been full employment of resources.
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If net investment spending in a nation is zero, we can conclude that:
a. gross investment exceeds the capital consumption allowance. b. the capital consumption allowance exceeds gross investment. c. imports equal exports. d. gross investment equals the capital consumption allowance. e. no investment goods were produced in the economy.
In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost?
A. At that point (economic) profit is zero. B. Below that point average revenue becomes less than marginal revenue. C. Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. D. Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms.