Economic growth and the PPF (2)Syllabus: Explain, using a PPC diagram, economic growth as an increase in production possibilities caused by factors including increases in the quantity and quality of resources, leading to outward PPC shifts.
Remember PPC and PPF are the same thing
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- The increase in production from point A to Point B is an increase in actual economic growth - more of both goods being produced
- Points on a given PPC mean the economy is at Full Employment (See pages 52 and 85)
- If there is an increase in production potential (PPF1 to PPF2) then point X (previously full employment) is now inefficient
The above analysis raises two questions for governments.
- How do they move the economy from operating at the point inside the production possibility curve to a position on the production possibility curve?
- In the longer term how do they bring about a shift of the production possibility curve from curve 1 to curve 2? In other words how can a government encourage economic growth? Ultimately, it can only do so by increasing the amount of resources, or finding ways of using the resources more efficiently.