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Ms. Frank AP Macroeconomics Production Possibilities Classwork Positive or Normative Statement Label each statement below as positive or normative 1.The minimum wage should be increased so low-income workers can earn a living wage. N 2. The unemployment rate is too high and should be reduced through government actions.N 3. The rate of inflation was 2% last year, a decade low figure. P 4. The government should take action to reduce the control that Microsoft has in the market for software. P 5. Interest rates should be lower in the US so that people can afford to build a new home. ____P__ 6. The federal government achieved a balanced budget for the first time in twenty years. ___N___ Production Possibilities 7. Define opportunity cost and give two examples. Definition: the loss of potential gain from other alternatives when one alternative is chosen. Example 1: Example 2: 8. What are the two types of goods that a country produces? Which one promotes long run economic growth? Use the Production Possibilities graph above to answer the following questions 9. The opportunity cost of moving from point A to point C is 5 units of __boats__. 10. The opportunity cost of moving from point C to point B is ___2____ units of __boats______. 11. What does this mean about this economy if it is currently operating at point D of the graph? 12. What does this mean about this economy if it is currently operating at point E of the graph? Inflation is occuring

Ms. Frank AP Macroeconomics Production Possibilities Classwork Production Possibilities Exercise Directions: Read the following case scenario and use the information below to graph a production possibilities curve (frontier). Answer the questions that follow, graphing where necessary. Case Scenario: Big Blue Computers has developed a new series of Personal Computers (PCs) to sell to individuals and small businesses. However, Big Blue’s strongest area of current sales is in the realm of large mainframe computers. Big Blue desires to maintain its strength in mainframes, but also hopes to capture part of the PC market currently dominated by competitors. Big Blue is capable of producing various numbers of computer units, depending on production decisions. Point Personal Computers Mainframe Computers A 14,000 0 B 12,000 3,000 C 9,000 5,500 D 5,000 7,500 E 0 9,000 PCs MFs

Ms. Frank AP Macroeconomics Production Possibilities Classwork 13. What is the opportunity cost of moving from point A to C? 14. What is the opportunity cost of moving from D to B? 15. What is the opportunity cost of producing all personal computers? 16. What would need to happen so that Big Blue Computers could produce 16, 000 PCs or 10,000 mainframes? 17. What might cause Big Blue to produce a combination of 7,000 PCs and 4,000 mainframes? 18. Graph a curve that would reflect an increase in productivity in the production of PCs only and label it ZZ. (or color red) 19. Graph a curve that would appropriately reflect a decrease in the output of mainframes caused by a malfunction of the mainframe assembly line and label it YY. (or color blue) 20. Graph a new curve that shows an overall increase in Big Blue’s ability to produce both products due to a decrease in the current cost of materials for both PCs and mainframes. (color yellow) 21. Graph a new curve that shows how a rise in the cost of labor for both assembly lines would affect Big Blue’s production possibilities frontier. (color green) 22. Is it possible to maintain positions outside of a production possibilities curve without changing some factor of production? 23. What is the best mix of output for Big Blue? 24. What differences exist between PPCs for individual businesses and the economy as a whole? (What do you label the axes in a “macroeconomic” view of the economy?) Match the following scenarios with the corresponding graph

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Ms. Frank AP Macroeconomics Production Possibilities Classwork 25. The labor force becomes more educated. ______ 26. The unemployment rate drops from 12% to 10% ______ 27. Productivity (output per worker hour) increases. ______ 28. The steel plants in a nation are temporarily shut down. ______ 29. Factories which have been shut down are re-opened. _____ 30. A large number of new manufacturing facilities are built. ______ 31. A nation suffers a severe loss of infrastructure (roads, airports, telecommunications, etc.) as a result of war. ______ 32. In the following graph, at what point should an economy operate in order to achieve the greatest economic growth in the future? Draw each scenario below on a correctly labeled PPC graph.

Ms. Frank AP Macroeconomics Production Possibilities Classwork 33. The population becomes more educated over time as the number of high school dropouts falls and the number of college graduates rises. 34. Assume that the country of Rankinland is currently fighting inflation. Assume that Rankinland produces only food and clothing. Draw a correctly labeled production possibilities curve for Rankinland. Show a point that could represent the current output combination and label it A. 35. The unemployment rate declines from 7 to 6 percent of the labor force. 36. Advances in telecommunications and new technology significantly contribute to economic growth over time. 37. Congress and the President decide to allocate more resources to national defense.

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