Final answer:
The Production Possibilities Frontier (PPF) demonstrates economic growth by shifting outward when an economy increases its resources or technology. Producing more capital goods may lead to greater future economic growth, as it expands production capabilities. A focus on consumption goods may result in less growth, as it does not expand productive capacity.
Step-by-step explanation:
The Production Possibilities Frontier (PPF) is a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. When we depict economic growth using the PPF, we assume that:
Efficient use of resources is taking place when production is on the PPF.
If there is economic growth, such as through an increase in resources (labor, capital) or improvements in technology, the PPF shifts outwards.
For example, if an economy is producing more capital goods (machinery, buildings, etc.), represented on one axis of the PPF, and fewer consumption goods (clothes, electronics, etc.), shown on the other axis, this can lead to greater economic growth in the future. This is because capital goods contribute to increasing the productive capacity of the economy. If, in the next period, the economy has more resources or better technology, the PPF will shift outwards, indicating that the economy can produce more of both consumption and capital goods.
Choosing a different point on the PPF, such as one with a higher production of consumption goods and fewer capital goods, might result in less growth over the next period. Since capital goods are necessary for future production capabilities, an economy focusing on consumption goods might not be expanding its production possibilities as quickly.