Production Possibility Frontier

Question 1

what is a production possibility frontier

Answer 1

A production possibility frontier shows how much an economy can produce given existing resources.

A production possibility can show the different choices that an economy faces.

For example, when an economy produces on the PPF curve, increasing the o

Question 2

how does economic growth effect the ppf

Answer 2

If there is an increase in land, labour or capital or an increase in the productivity of these factors, then the PPF curve can shift outwards enabling a better trade-off.

Question 3

NOTE

Answer 3

there is a link between macroeconomics and the long-run aggregate supply curve. If the PPF curve shifts to the right, then it is similar effect to the LRAS shifting to the right

Question 4

Production possibility frontier and investment

Answer 4

One choice an economy faces is between capital goods (investment) and consumer goods.

If more resources are devoted to capital goods (e.g. building new factories) then in the short-term, consumption will go down.
However, if the investment is successful, then in the long-run, productive capacity will increase and the PPF curve will shift to the right
One choice an economy faces is between capital goods (investment) and consumer goods.

If more resources are devoted to capital goods (e.g. building new factories) then in the short-term, consumption will go down.
However, if the investment is successful, then in the long-run, productive capacity will increase and the PPF curve will shift to the right

Question 5

ppf in a recession

Answer 5

A recession can be shown by output falling below the production possibility frontier