2 How is an immediate effect of an increase in unemployment illustrated on a production possibility curve diagram?1 pointA a movement of the production point closer to the curveB a movement of the production point further inside the curveC a shift of the production possibility curve inwardsD a shift of the production possibility curve outwardsClear selection
Question
2 How is an immediate effect of an increase in unemployment illustrated on a production possibility curve diagram?1 pointA a movement of the production point closer to the curveB a movement of the production point further inside the curveC a shift of the production possibility curve inwardsD a shift of the production possibility curve outwardsClear selection
Solution
An immediate effect of an increase in unemployment is illustrated on a production possibility curve diagram by a movement of the production point further inside the curve.
Here's why:
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The production possibility curve (PPC) represents the maximum combination of goods and services that can be produced by an economy with the available resources and technology.
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When there is full employment and efficiency, the economy operates on the PPC.
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However, when unemployment increases, the economy is not making full use of its resources, particularly labor.
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This under-utilization of resources is represented by a point inside the PPC.
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Therefore, an increase in unemployment would move the production point further inside the curve, illustrating that the economy is producing less than its potential output.
Similar Questions
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