Chapter Two: Useful Tools and Concepts

Our Tools for Understanding

YearUnemployment RateReal GDP Growth Rate %4.1% %1.1% %1.8% %2.5% %3.5% %3.1% %2.7% %1.9% %-0.3% %-3.1% %2.4% %1.8% %2.2% Table 2.1: Unemployment Rate and Real GDP Growth Rate, United States, (in percent) Sources: U.S. Bureau of Economic Analysis, ;U.S. Bureau of Labor Statistics,

Figure 2.B1: Unemployment Rate, United States, Sources: United States Bureau of Labor Statistics, United States Bureau of Economic Analysis,

2008 (5.8, -0.3) Figure 2.B2: Relationship between Unemployment and GDP Growth Rate, United States, Sources: United States Bureau of Labor Statistics, United States Bureau of Economic Analysis,

Figure 2.B3: Relationship between GDP Growth Rate and Greenhouse Gas Emissions Growth Rate, United States, Source: Greenhouse Gas data from United States Environmental Protection Agency, climatechange/ghgemissions/usinventoryreport.html.

Economic Tradeoffs

A Quantity of Butter Quantity of Guns B C D PPF Figure 2.1: Society’s Production-Possibilities Frontier

Quantity of Output 1 Quantity of Output 2 PPF with Additional Resources or Technological Progress Original PPF Figure 2.2: An Expanded Production-Possibilities Frontier

A Quantity of Resource-Depleting Production Quantity of Maintenance B Figure 2.3: Society’s Production/Maintenance Frontier

Quantity of Output 1 Quantity of Output 2 Future PPF with High Resource Maintenance Now Future PPF with High Resource Depletion Now Figure 2.4: Possible Future PPFs

The Role of Markets

Factor Markets Product Markets Land, Labor, and Capital Services Produced Goods and Services Wages, Rents, Interest, and Profits Payments for Produced Goods and Services Households Firms Figure 2.5: The Circular Flow Diagram for the Basic Neoclassical Model