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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Imagine a society that produces military goods and consumer goods, which we’ll call “guns” and “butter.”

a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out shape.

b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient.

c. Imagine that the society has two political parties, called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks might choose and a point that the Doves might choose.

d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger “peace dividend,” measured by the increase in butter production? Explain.

Subpart (a):

To determine

Production possibility frontier.

Explanation

Figure 1 shows the production possibility frontier for the production of guns and butter.

The vertical axis of Figure 1 measures the quantity of guns produced in a society and the horizontal axis measures the quantity of butter produced. The point “H” and “D “on PPF are efficiency points. Point “B” and “A” are the inefficient and infeasible points. In point H, the quantity of guns produced is greater than that of the quantity of butter produced and in point “D”, the quantity of butter produced is greater than the quantity of guns that are produced...

Sub part (b):

To determine

Production possibility frontier.

Sub part (c):

To determine

Production possibility frontier.

Sub part (d):

To determine

Production possibility frontier.

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