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Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year,and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year.There are 20 workers in Cornland and 20 workers in Oatland.If the two countries do not trade,Cornland will produce and consume 400 bushels of corn and 100 bushels of oats,while Oatland will produce and consume 60 bushels of corn and 400 bushels of oats.If each country made the decision to specialize in producing the good in which it has a comparative advantage,then the combined yearly output of the two countries would increase by
Potential Output
The maximum amount of goods and services an economy can produce when it is most efficiently utilizing its resources.
Expansionary Gap
A situation in an economy where actual gross domestic product exceeds the potential GDP, leading to inflationary pressures.
Natural Rate
The level of economic output at which the rate of inflation is stable, often related to the concept of the natural rate of unemployment where the labor market is in equilibrium.
Consumer Price Index
A metric that analyzes the weighted average cost of a selection of consumer goods and services, such as medical care, transportation, and food, to measure inflation.
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