In a certain economy, jam and bread are produced, and the economy currently operates on its production possibilities frontier. Which of the following events would allow the economy to produce more jam and more bread, relative to the quantities of those goods that are being produced now?
a. Unemployed labor is put to work producing jam and bread.
b. The economy puts its idle capital to work producing jam and bread.
c. The economy experiences economic growth.
d. All of the above are correct.
The correct answer and explanation is :
Correct answer: c. The economy experiences economic growth.
Explanation:
In economics, the Production Possibilities Frontier (PPF) represents the maximum combination of two goods that an economy can produce using all its resources efficiently. When an economy is operating on the PPF, it means that it is already utilizing all available resources efficiently. Therefore, the only way to produce more of both goods simultaneously is to shift the PPF outward, which represents economic growth.
Option a suggests that unemployed labor is put to work. While this improves production, it only applies when the economy is operating inside the PPF. If the economy is already on the PPF, then labor is already fully employed, and this action would not lead to more production of both jam and bread.
Option b mentions putting idle capital to work. Like labor, if the economy is on the PPF, it implies that all capital is already being used efficiently. Hence, putting idle capital to use only applies to situations where the economy is operating below its capacity.
Option c, economic growth, is the correct answer. Economic growth occurs when the overall productive capacity of the economy increases. This can happen due to advances in technology, increases in the labor force, capital accumulation, or improvements in productivity. With economic growth, the PPF shifts outward, allowing for an increase in the production of both goods simultaneously.
Option d is incorrect because options a and b do not apply when the economy is already on the PPF. Only option c leads to more production of both jam and bread under these conditions.
In conclusion, the only event that enables an economy operating on its PPF to produce more of both goods is economic growth.