Solved

Exhibit 2.6 -Refer to Exhibit 2.7, Which Shows the Production Possibilities Frontier

Question 152

Multiple Choice

Exhibit 2.6

-Refer to Exhibit 2.7, which shows the production possibilities frontier for capital goods and consumer goods. Identify the correct statement.

A) If the economy is initially at point b, an increase in capital stock will lead to a movement to point c.
B) If the economy is initially at point c, an increase in capital stock will lead to a movement to point b.
C) Economic growth will allow the economy to produce at a point that lies on a higher production possibilities frontier.
D) Economic growth will allow the economy to produce at a point that lies on a lower production possibilities frontier.
E) If the economy is initially at point a, an improvement in the rules of the game will lead to a movement to point c.

Correct Answer: