Chapter 40, Problem 1FRQ

a)

To determine

The points which show a downturn in the business cycle on the graph.

Explanation of Solution

A downturn in the business cycle could be represented by points F and E because these points are below the possibility curve where the production is low as compared to other points on the graph. At these points, the number of consumer goods and the quantity of investment goods are the downsides of the possibility curve.

b)

To determine

The points which show efficient production on the graph.

Explanation of Solution

In the graph, points: A, B, and C show that there is efficient production because these three points are lying on the possibility curve. It means these points are attainable as well as they will deliver appropriate production of quantity related to consumer goods and investment goods.

c)

To determine

The points which show attainable only after long-run economic growth on the graph.

Explanation of Solution

Point D on the graph is the only one that can be attained after long-run economic growth. It is, because other points such as A, B, and C are attained with current economic growth, and E, as well as F, were attainable but at the time when there was a downturn in business. Point D is, therefore, unattainable which can be attained after long-run economic growth.

d)

To determine

The way through which long-run economic growth can be shown in the graph.

Explanation of Solution

Long-run economic growth on the graph is represented by an outward shift of the possibility curve because when unattainable points would be attained with the long-run economic growth then the curve would shift outward. With long-run economic growth, the unattainable targets of production can be achieved which shifts the curve outward.

e)

To determine

The movement between which two points when policy shows an increase in the production of consumer goods without any decrease in the production of investment goods.

Explanation of Solution

When a policy gives an output where the production of consumer goods is increased without any impact or reducing the production of investment, then, on the graph, this policy is represented between points E and C. on these points quantity of investment goods remains the same as C point attains the same level of investment goods as E attained but the quantity of consumer goods is increased.

f)

To determine

The efficient point of the current year when production leads to the most-economic growth in the next year.

Explanation of Solution

When the business produces goods at the point of A in the current year, it is experiencing the most economic growth in the next year. It happens because, at this point, the business is getting the advantage of a high quantity of investment goods which can provide the best results in the next year and it makes this point more efficient on the graph.