Consider a production possibility frontier [PPF] for the current year that measures the output of capital goods on the horizontal axis and the output of consumer goods on the vertical axis.Which of the following statements is true?

Question

Quizplus · Accepted Answer

An increase in investment in the current period will lead to a shift of the PPF in the future period. This is because investment in capital goods increases the productive capacity of the economy, allowing for more goods to be produced in the future. However, this does not necessarily increase current consumption, as resources are diverted from consumer goods production to capital goods production, resulting in a trade-off between present and future consumption. Technological progress would also shift the PPF outward, but it would not lead to a fall in current consumption. Option B is incorrect as increased productive capacity does not necessarily require an increase in current consumption. Option D is incorrect as an increase in investment in the current period typically results in a decrease in current consumption.

Consider a Production Possibility Frontier [PPF] for the Current Year