4. refer to table 16.2 and assume that the fed's reserve ratio is 10 percent and the economy is in a severe recession. also sup  pose that the commercial banks are hoarding all excess reserves (not lending them out) because of their fear of loan defaults. finally suppose that the fed is highly concerned that the banks will suddenly  lend out  these excess reserves  and possibly  con  tribute  to inflation  once  the  economy  begins  to  recover  and confidence  is restored . by  how many percentage  points  would the fed  need to increase  the reserve ratio  to  eliminate  one -third of the excess reserves? what would be the size of the monetary multiplier  before and after  the change  in the reserve ratio ? by how much  would the lending  potential of  the banks decline  as a result  of the increase  in the reserve  ratio ? l016.3

levels of production can be increased by technology while holding labor and capital constant, because increased technology makes the production process more efficient. subsequently, the lras curve is almost a vertical line, that can shift to the right, with an increase in technology.

the relationship between the lras curve and the ppc is that both can make the economy could grow. the ppc achieves that when it shifts outward because of more resources or technological advances while the lras curve shifts if more resources are developed or if there are technological advances.

the lras curve is a vertical line at an output level that represents the number of goods and services a nation can produce over a sustained period using all of its productive resources as efficiently as possible with all of the current technology available to it.

the production possibilities frontier (ppf) is a graphical device that is used for economic analysis of production decisions because the ppf measures the maximum possible combinations of two goods that an economy is capable of producing with its currently available resources and technology.

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