China's State Council has encouraged more spending to "improve transportation links and other infrastructure... ." It will also "step up its spending on vocational training and other educational programs for adults."
HYPERLINK "http://www.nytimes.com/" www.nytimes.com, Keith Bradsher, October 19, 2008
Suppose that capital goods are on the vertical axis while consumption goods are on the horizontal axis of China's PPF. As a result of enacting the policies, we would expect
i. an expansion of China's production possibilities.
ii. capital accumulation.
iii. an increase in human capital

Question

Quizplus · Accepted Answer

By encouraging more spending on infrastructure and education, China is investing in both physical capital and human capital, which will lead to capital accumulation and an increase in human capital. This, in turn, will expand China's production possibilities and shift the PPF outward. Therefore, all three options i, ii, and iii are correct.

China's State Council Has Encouraged More Spending to "Improve Transportation