Suppose that an economy is initially operating at a point on its PPC. If it then experiences an expansion in its production capacity, but its total spending does not rise as fast as its capacity, the
Economy will end up
A) still on its production possibilities curve.
B) outside its production possibilities curve.
C) inside its production possibilities curve.
D) on one of the axes of its production possibilities curve.

Question

Quizplus · Accepted Answer

If the total spending does not rise as fast as the increased production capacity, it means that there is a decrease in demand or a surplus in the market. This will result in a decrease in the price level, leading to a decrease in the cost of production. As a result, the economy will be able to produce more with the same amount of resources and end up inside its production possibilities curve.

Suppose That an Economy Is Initially Operating at a Point