Final answer:
The hypothesis posits that a well-funded social safety net might increase economic equality due to more equitable distribution of resources but reduce economic output by diminishing private investment and incentives to work. The tradeoff can be shown on a production possibility curve where 'Economic Output' decreases as 'Social Benefits' increase.
Step-by-step explanation:
The hypothesis that a well-funded social safety net can increase economic equality but will reduce economic output is based on the idea that greater social spending requires higher taxes or more government borrowing. This can lead to a decrease in private sector investment because the private sector has less capital to invest or must pay higher interest rates. Moreover, it may reduce incentives for individuals to work or be productive if they rely on government support. As for economic equality, generous benefits can lessen income inequality by providing minimum living standards for all.
A production possibility curve (PPC) is a graphical representation showing the maximum possible output combinations of two goods that can be produced with available resources and technology. In the context of this hypothesis, if we assume the two goods are 'Economic Output' and 'Social Benefits,' a well-funded social safety net would mean the economy operates within the PPC, providing more 'Social Benefits' but producing less 'Economic Output' due to the reasons mentioned.