An increase in government spending shifts the PPF

Question

Quizplus · Accepted Answer

An increase in government spending will lead to an increase in the demand for goods and services and cause an outward shift of the production possibility frontier (PPF) in the short run. This shift will be downward, indicating that there is an opportunity cost to producing more goods and services as resources are diverted from other uses. However, it will not change the slope of the PPF because the slope represents the marginal rate of transformation, which is determined by the technology and resources available and is not affected by changes in government spending.

An Increase in Government Spending Shifts the PPF