Question

In: Economics

Describe the adjustments in the production possibilities curves in each of the following situations for the...

Describe the adjustments in the production possibilities curves in each of the following situations for the Canadian economy. Explain thoroughly with words + graph in each of the below scenarios.

(a) (1.5 points) the economy moves from full employment into a deep recession
(b) (1.5 points) the economy makes great strides in eliminating discrimination
(c) (1.5 points) the end of the Cold War leads to cuts in military spending
(d) (1.5 points) the government significantly increases spending for health and education

Solutions

Expert Solution

a) The production possibility curve of an economy reflects the maximum combination of two commodities, provided the total resources and the technology of the economy.

Along the production possibility curve, the economy represents the combination of commodities, when the economy is working under full employmen. When the economy goes into reccession, the economy is not working in full employment rather, the economy now works in a point inside the production possibility curve.

When the economy is in recession, it would be producing in at a point A, whih lies inside the production possibility frontier of the economy.

b) The economy's great stride would respond to a progress of the economy, leading to the otward shift of the production function. This would enhance the economy's production capabilities.

c) A cut in the military spending would initiate the allocaation of that amount to the production of goods and commodities, and the production function of the economy would shift out, as the economy's production capabilities increases.

d) The increased spending of the government in the heath and education would increase the productivity of the population, so would increase the production capabilities, and the production possibility frontier would shift outwards.


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