Final answer:
A nation's production possibilities curve can shift outward due to specialization and trade, reflecting an economy's ability to produce and consume more goods. Productivity growth, including technology improvements and resource increases, drives this shift. The result is a rightward shift of the Aggregate Supply (AS) curve and an expanded production possibilities frontier (PPF).
Step-by-step explanation:
A nation's production possibilities curve can shift outward as a result of specialization and trade. Specialization allows an economy to focus on the production of goods for which it has a comparative advantage, leading to increased efficiency. When countries trade these specialized goods, they can both achieve consumption outside their individual production possibilities frontier, effectively shifting the nation's production possibilities curve outward. This outward shift indicates that the economy can produce and consume more goods than before.
Historically, productivity growth, which includes improvements in technology and increases in the amount of labor and capital, has led to an outward shift in the production possibilities frontier (PPF). Productivity growth, measured as output per worker or GDP per capita, is crucial because it signifies how much more output can be produced with a given quantity of labor. This trend is reflected in sustained real GDP per capita growth, averaging about 2% to 3% per year in advanced economies, with variations across different time periods.
Improvements in productivity shift the Aggregate Supply (AS) curve to the right, indicating that firms can produce a greater quantity of output at every price level. This can be illustrated by a rightward shift in Long Run Aggregate Supply (LRAS), showing a higher level of potential GDP at full employment—thus reflecting a more productive economy capable of more production and consumption.