youreanutter
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All other things being equal, which one of the following is most likely to move the economy
from a point on the PPF curve to a point inside the PPF cure ?
A A decrease in inflation
B A decrease in investment expenditure
C A reduction in productive capacity
D A reduction in the trend rate of growth

the answer is B why is it B and not D or C

An economy is currently operating with a negative output gap. In the short run, if the rate of
growth of aggregate demand is positive but less than the rate of growth of productive capacity,
then the economy is most likely to experience
A a decrease in output.
B an increase in unemployment.
C a decrease in its trend rate of growth.
D a decrease in exports.
why is answer B and not C
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jpt4749
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I think it maybe that a decrease in investment expenditure refers to not maximizing the use of resources as efficiently as supposed to which leads to inefficiency.

Choice C is likely to move the PPF inward instead of the point.

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skalra
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(Original post by youreanutter)
All other things being equal, which one of the following is most likely to move the economy
from a point on the PPF curve to a point inside the PPF cure ?
A A decrease in inflation
B A decrease in investment expenditure
C A reduction in productive capacity
D A reduction in the trend rate of growth

the answer is B why is it B and not D or C

An economy is currently operating with a negative output gap. In the short run, if the rate of
growth of aggregate demand is positive but less than the rate of growth of productive capacity,
then the economy is most likely to experience
A a decrease in output.
B an increase in unemployment.
C a decrease in its trend rate of growth.
D a decrease in exports.
why is answer B and not C

The answer to your first question is B only. C will lead to a shift in PPF. The economy will have new PPF then which will be inside the original PPF but the economy will still operate on the frontier of new PPF. The only scenario in which an economy will operate inside a PPF is when it is not utilizing its resources fully and efficiently.
Decrease in investment spending will lead to fall in GDP, which will lead to less aggregate demand and this will eventually mean unemployment. So, this means that your resources in the economy are not fully utilized ( as some people are thrown out of work) and the economy will move to a point inside the PPF curve.
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youreanutter
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(Original post by skalra)
The answer to your first question is B only. C will lead to a shift in PPF. The economy will have new PPF then which will be inside the original PPF but the economy will still operate on the frontier of new PPF. The only scenario in which an economy will operate inside a PPF is when it is not utilizing its resources fully and efficiently.
Decrease in investment spending will lead to fall in GDP, which will lead to less aggregate demand and this will eventually mean unemployment. So, this means that your resources in the economy are not fully utilized ( as some people are thrown out of work) and the economy will move to a point inside the PPF curve.
doesnt the amount of investment increase productive capacity as mineys spent on new machinery?
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Bigbosshead
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Investment is a component of aggregate demand, meaning that if greater investment takes place, this would lead to a rightward shift in aggregate demand, and hence greater economy growth.

Productive capacity of an economy always refer to aggregate supply, meaning any change to the quality or quantity of the factors of production would lead to a shift in aggregate supply.

In this case, we can see that investment is a component of aggregate demand, not aggregate supply. So despite leading to increased economy growth, it would not directly affect the productive capacity of the economy.

This seems to be theoretically correct, though it must be said that in practice investment would lead to an increase in the productive capacity of the economy (or would it?)

can someone kindly confirm?
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