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Economic Models: GDP, PPF, & Circular Flow

The document outlines key economic concepts such as GDP, GNP, and the circular-flow model, which illustrates how money flows through different sectors of the economy. It also discusses the Production Possibilities Frontier (PPF), highlighting trade-offs and opportunity costs in production decisions. Additionally, it mentions factors that can shift the PPF, such as technological advances and increases in production factors.

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7 views15 pages

Economic Models: GDP, PPF, & Circular Flow

The document outlines key economic concepts such as GDP, GNP, and the circular-flow model, which illustrates how money flows through different sectors of the economy. It also discusses the Production Possibilities Frontier (PPF), highlighting trade-offs and opportunity costs in production decisions. Additionally, it mentions factors that can shift the PPF, such as technological advances and increases in production factors.

Uploaded by

viratkohli2765
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Simple Economic Models

Concepts
• Gross Domestic Product (GDP)
• Gross National Product (GNP)
• Net Domestic Product (NDP)
• Net National Product (NNP)
• Factor cost and Market price
• Depreciation
THE CIRCULAR-FLOW DIAGRAM
The circular-flow of income model
Ø A visual model of the economy that shows how money flows
through markets among different sectors of an economy.

Ø We have considered 5 sectors in an economy,


1. Households
2. Firms
3. Financial sector (Banks)
4. Government
5. Foreign sector ( Rest of the world)
Two Sector Model (Spendthrift
Economy)
Frugal Economy
Three Sector Model
Four Sector Model (Open Economy)
THE PRODUCTION
POSSIBILITIES FRONTIER
Production
Possibilities Frontier (PPF)
Ø A graph that shows the combinations of output that the economy can
possibly produce given the available factors of production and the
available production technology.
Production
Possibilities Frontier (PPF)
Ø Real economies produce thousands of goods and services, let’s assume an
economy that produces only two goods—cars and computers.
Production
Possibilities Frontier (PPF)
• People face trade-offs. The production possibilities frontier shows one
trade-off that society faces. Once we have reached the efficient points on
the frontier, the only way of getting more of one good is to get less of the
other. When the economy moves from point A to point B, for instance,
society produces 100 more cars but at the expense of producing 200 fewer
computers.

• The production possibilities frontier shows the opportunity cost of one


good as measured in terms of the other good . When society moves from
point A to point B, it gives up 200 computers to get 100 additional cars.
That is, at point A, the opportunity cost of 100 cars is 200 computers.
A Shift in the Production Possibilities Frontier(PPF) : technological advance
in the computer industry
Shift in PPF: Increase in the Factors of
Production
Thank You

© This presentation is a property of Department of Humanities and Social Sciences, Malaviya


National Institute of Technology Jaipur ( Rajasthan) . Reproduction and distribution of the
presentation without written permission of department is prohibited.

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