The PPF at Less Than Full Employment

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For students in my intro to macro course. Some evidence that shows that the economy typically operates below full employment, so we lie under the PPF.

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The PPF at Less Than Full Employment

  1. 1. EC 201: Introduction to Macroeconomics Mitch Green Instructor University of Missouri - KC
  2. 2. Production Possibilities Frontier: The Case of Underemployment• The Production Possibilities Frontier shows how society allocates its resources efficiently between competing ends.• Assumption: All resources are fully employed
  3. 3. Does the assumption hold?• The following graphs present evidence that we NEVER operate at full employment.• Excess resources: – Unemployed labor – Unemployed capital
  4. 4. Excess Capacity in the Labor Force
  5. 5. Excess Capacity in the Labor Force
  6. 6. Excess Capacity in the Labor Force
  7. 7. Excess Capacity in the Labor Force
  8. 8. Excess Capacity in Capital
  9. 9. Putting them Together: Excess Capacity in both Labor and Capital Therefore, we operate below the PPF!

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