Question

a)Using a production possibilities schedule and assuming consumer goods and capital goods, explain how your positions on the curve can determine your location of the economic growth in the future. Use diagrams.

Answer 1

Ans) PPC is a graphical representation of possible combination of two goods that an economy can produce. Since, resources are limited, not everything that we desire can be made. Therefore, there is trade off.

When country produces more capital goods than consumer goods then economic growth is more. It is because today's investment increases future consumption.

When a country produces more consumer goods, economic growth is less because the resources needed for future development are consumed in present.

The above graph shows that when in present, the economy is at A i.e it is producing more capital goods then the economic growth is more. While if country in present, produces at B i.e produces more consumer goods then economic growth is less.