Economic growth always takes the form of
Multiple Choice
A: an expansion of production possibilities.
B: a change in how goods are distributed.
C: a movement along the production possibilities curve.
D: higher prices.
The Correct Answer and Explanation is:
Correct Answer: A: an expansion of production possibilities.
Explanation:
Economic growth refers to an increase in a country’s capacity to produce goods and services over time. It is typically measured by the rise in Gross Domestic Product (GDP) and reflects improvements in productivity, labor force expansion, technological advancements, and capital accumulation. The correct choice—A: an expansion of production possibilities—is the most accurate representation of economic growth in terms of economic models.
Economists often use the Production Possibilities Curve (PPC) to illustrate trade-offs in the allocation of scarce resources between two goods or services. The PPC shows all the possible combinations of outputs that an economy can produce given its available resources and technology. Under normal conditions, the PPC is bowed outward, indicating increasing opportunity costs.
When economic growth occurs, this curve shifts outward, representing an expansion of production possibilities. This means that the economy can now produce more of both goods than it could previously. For example, if a country invests in better education, infrastructure, and technology, its workforce becomes more skilled, and its machinery more efficient. As a result, the economy can produce more consumer and capital goods, reflecting real growth.
Let’s now address why the other options are incorrect:
- B: A change in how goods are distributed – While redistribution affects who gets what within an economy, it doesn’t change the economy’s overall capacity to produce. Redistribution is about equity, not growth.
- C: A movement along the production possibilities curve – This indicates a change in the combination of goods being produced, not an increase in the economy’s ability to produce more overall.
- D: Higher prices – Rising prices reflect inflation, not necessarily economic growth. Prices can increase even when output does not, which can be harmful if wages and productivity do not keep pace.
In summary, economic growth is best represented by an outward shift of the PPC, showing a nation’s increased capacity to produce and consume more goods and services.