Question

. Suppose a presidential candidate campaigns on the need to improve Ghana’s infrastructure, a term for capital goods like bridges, highways, and technology (much of it publicly owned). Which would lead to faster growth: government expenditure on capital goods or expenditure on consumption goods? Illustrate your answer, drawing appropriate production possibilities frontiers accompanied by an explanation.

Answer 1

Answer :-

At the point when the government is spending more on the consumption good they are at the point B.

AN increased expenditure will take them to a higher point that is B'. Here, now, they will be devouring Kb of capital and Cb of the consumption good at a higher point.

However, in the event that the government increment the consumption on the capital good their growth will be from point A (Ka, Ca) to point A'. This is higher growth when contrasted with the growth from the consumption goods since it permitted the firm to arrive at a higher PPF that implies more prominent production ability.

Thus, the government ought to spend on the Capital Good to accomplish a higher growth rate.