Question

12/3/2019

Answer 1

Answer:

B. An increase in unemployment.

Explanation:

• The production possibility growth is a curve that reflects the maximum aggregated output that can be produced in a particular economy, with a given endowment of inputs.

• This implies that, the potential output of the economy is given by the production possibility growth border. The actual output might be lower than the potential output, when not all the productive inputs are used. This happens when there is unemployment.
• Then, the existence of  unemployment means that we are not producing as much as we could, given the endowment of the economy. But this says nothing about our production options: the production possibility curve remains exactly the same when there is unemployment (our production potential does not change, unemployment means that we are not using all our production inputs, as shown in the graph below).

• Options A and B, on the other hand, reflect an improvement of technology, both implying an increase of the production possibility growth, which looks graphically, as an expansion of the production possibility frontier. (See curve in red, which reflects this).