Suppose there are two countries, Here and There, which have identical amounts of resources, identical technologies, and identical populations. Both produce two types of goods-consumer goods and capital goods-and they both always operate on their production possibilities frontiers. The only difference is that this year There chooses to produce relatively more capital goods than Here. What will happen as a result?
A) Here will have a lower living standard this year and will grow slower than There.
B) Here will have a lower living standard this year but will grow faster than There.
C) There will have a lower living standard this year and will grow slower than Here.
D) There will have a lower living standard this year but will grow faster than Here.

Question

Quizplus · Accepted Answer

There, by focusing on capital goods, invests in future production capabilities, sacrificing current consumption. This leads to a lower living standard now but sets the foundation for faster growth compared to Here, which focuses more on consumer goods, enjoying a higher current living standard but with slower future growth.

Suppose There Are Two Countries, Here and There, Which Have