Answer to Question #235772 in Macroeconomics for Jennie

Question

Suppose that country A and country B currently have identical production possibility frontiers, but that country A devotes only 5 per cent of its resources producing capital goods over each of the next 10 years, whereas country B devotes 30 per cent. Which country is likely to experience more rapid economic growth in the future? Illustrate using a production possibility frontier graph. Your graph should include production possibility frontiers for country A today and in 10 years, and for country B today and in 10 years.

Answer 1

In business, the production possibility frontier (PPF) is a bend that outlines the varieties in the sums that can be created of two items if both rely on a similarly limited asset for their assembling. The PPF is additionally alluded to as the production possibility bend or the change bend. The production possibility bend depicts society's preferred expense between two distinct merchandise.

There are two countries

Country A devotes only 5% to the capital goods in next 10 years.

Country B devotes 30% to capital goods in next 10 years.

This means country B is likely to achieve more economic growth in future due to its higher investment in capital goods. Higher investment in capital goods results in higher future economic growth.