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.

1. EC 201: Introduction to
Macroeconomics
Mitch Green
Instructor
University of Missouri - KC

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. Does the assumption hold?
• The following graphs present evidence that we
NEVER operate at full employment.
• Excess resources:
– Unemployed labor
– Unemployed capital

4. Excess Capacity in the Labor Force

5. Excess Capacity in the Labor Force

6. Excess Capacity in the Labor Force

7. Excess Capacity in the Labor Force

8. Excess Capacity in Capital

9. Putting them Together: Excess Capacity in both Labor and Capital
Therefore, we operate below the PPF!