Suppose that the government could stimulate spending in one expenditure categories. In which category would the spending increase contribute MOST to an expansion of the country's production possibilities frontier?

Question

Quizplus · Accepted Answer

Increasing spending on capital goods would have the biggest impact on expanding the production possibilities frontier because capital goods are used in the production of other goods and services. By increasing investment in capital goods, the economy can produce more goods and services in the future, leading to long-term growth. In contrast, increasing spending on consumption goods or government purchases may provide a short-term boost to the economy but does not necessarily lead to long-term growth. Increasing net exports may also provide a short-term boost, but this depends on various external factors such as exchange rates and global demand.

Suppose That the Government Could Stimulate Spending in One Expenditure