Question

A. It will shift PPF inward B. It will shift PPF outward C. The country will produce inside of its unchanged PPF D. The country will produce outside of its unchanged PPF E. A recession does not affect the PPF at all

Answer 1

Answer & Explanation :

PPF is graphical representation of goods combinations, which an economy can produce - given resources & technology.

It denotes maximum potential production with given resources & technology efficient utilisation, points under PPF reflect under utilisation, points outside PPF are unattainable.

A. Shift PPF inward - Fall in resources & or technology will reduce the economy production potential of both goods, shift PPF inwards

B. Shift PPF outward - Improvement in resources & or technology will increase the economy production potential of both goods, shift PPF outwards.

C. Country produce inside unchanged PPF - Country utilising resources, technology inefficiently

D. Country produce outside PPF - Given resources & technology, production outside PPF is beyond max production potential & such are unattainable combinations

E. Recession does not affect PPF - If recession just reduces price level & doesn't lead to output quantity fall or unemployment rise/ idle resources ; it still utilises resources & technology efficiently. So, doesn't affect PPC.