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Econmac Analysis of A Macroeconomic Issue 2
Econmac Analysis of A Macroeconomic Issue 2
Introduction
The Production Possibility Frontier (PPF) illustrates two products’ possible quantities
when they depend on the same resource for production. PPF plays an important role in
economics since it is one way of determining if an economy is growing or shrinking.
II. Body
a. PPF and Economic growth
The PPF shows how tradeoffs, choice, and scarcity are considered while making
economic decisions through a graph.
Economic growth is the expansion of the PPF. This is shown by an outward shift of the
while an inward shift indicates a shrinking economy due to the failure of resource allocation
and optimal production capability.
There are two ways productive inputs can grow: through changes in
human resources and in physical capital. Labor force growth, investment in
human capital through education and training, and immigration could increase
both the quality and quantity of the labor force.
Capital accumulation/investment, construction, and imports of capital
goods increase the quality and quantity of physical capital. The growth of these
two types of inputs enhances the productive capacity of the economy and leads
to PPF expansion.
2. Technical Change
There are also different technical changes that affect the expansion of the
PPF, depending on the proportions of labor and capital productivity. These
include…