Economic growth can be modeled as
I. an outward shift of the economy's production possibilities curve.
II. a rightward shift of the economy's long-run aggregate supply curve.
III. a rightward shift of the labor demand and the labor supply curves.
IV. a downward shift of the economy's aggregate production function.

Question

Quizplus · Accepted Answer

Economic growth is typically modeled as an outward shift of the economy's production possibilities curve, which shows the combinations of goods and services that can be produced with given resources and technology. This outward shift represents an increase in the economy's potential output. Economic growth can also lead to a rightward shift of the economy's long-run aggregate supply curve, as firms invest in more capital and technology, which leads to higher productivity and lower costs. However, economic growth does not necessarily involve a shift in the labor demand and supply curves, as changes in these curves depend on factors such as changes in relative wages and the availability of workers. Economic growth should not be modeled as a downward shift of the economy's aggregate production function, which represents the relationship between inputs and output in the short run.

Economic Growth Can Be Modeled as