-Refer to the production possibility graph above.Assume that the economy is in equilibrium at point e.If a war reduces the country's capital stock by 40%,the new equilibrium is most likely to be

Question

Quizplus · Accepted Answer

A reduction in capital stock will shift the production possibility frontier inward, resulting in a new equilibrium at a point with lower output of both goods. Point b represents this new equilibrium.

-Refer to the Production Possibility Graph Above