1.7 Unemployment, Growth, and the Future

What were the unemployment and idle production rates during the Great Depression?

One-quarter of US workers were unemployed; one-third of production capacity was idle.

How did unemployment during COVID compare to the Great Depression?

1 in 7 workers was unemployed, but production fell only by about 10%.

How do we represent unemployment on the production possibilities curve (PPC)?

As points inside the original PPC.

Which countries experienced economic downturns and elevated unemployment since 2020?

Brazil, Italy, Russia, Japan, and France.

What happens when we drop the assumption of fixed resources and technology?

The PPC shifts outward, increasing the economy’s potential maximum output.

How do resource supplies change over time?

Population growth increases labor and entrepreneurship; education and training improve labor quality.

How can depleted resources be offset?

By discovering new sources and innovations like irrigation systems.

What is the result of increased factors of production?

Greater ability to produce both consumer and capital goods → economic growth.

How is economic growth shown graphically?

Outward/rightward shift of the PPC.

Define Economic Growth.

(1) Outward PPC shift from increased resources or tech; (2) Increase in real GDP or real GDP per capita.

What are two benefits of technological improvements?

New/better goods and improved production methods.

Example of a technological advance in production?

AI systems managing inventory and scheduling production.

What are the three drivers of economic growth?

(1) Increased resource supplies, (2) Improved resource quality, (3) Technological advances.

How do dynamic economies differ from static ones?

Dynamic economies can produce more of both goods; static ones must sacrifice one good to gain another.

How does current output choice affect future PPC?

Choosing outputs that favor tech and resource growth shifts the PPC outward over time.

Who grows faster: Futureville or Presentville?

Futureville, due to better choices in output favoring growth.

What does PPC analysis imply about national output limits?

Nations are limited to combinations shown on their domestic PPC.

How can nations overcome PPC limits?

Through international specialization and trade.

What is the basis of international trade?

Each nation specializes in goods with the lowest opportunity cost and trades for others.

Example of trade efficiency?

Trading 2 robots for 1 foreign pizza instead of sacrificing 3 domestic robots.

What is the effect of trade and specialization?

Similar to having more/better resources—greater output of capital and consumer goods.