Question

After watching the video clip from A Knight’s Tale, consider the effect of choosing consumption today versus consumption in the future. Using the PPC as a springboard for your analysis, what effect would forgoing consumption today in order to invest for tomorrow have on future production possibilities? Now consider the choices our government faces when it has limited tax revenues to fund the unlimited wants of its citizens. Describe some of the choices the government makes between consumption today and investment for tomorrow

Answer 1

Answer:-

Forgoing consumption today will result into more investment in capital goods today. Here, increased investment in capital goods will create more consumable goods in the future. Thus, making less consumption today will make a PPC curve to move outward and output will grow. Thus, more goods will be available for the consumption in the future.
The government also faces different choices and they prepare a budget that deals with collection of revenues and avenues of expenditures. Here, all expenditures are not revenue expenditures. But, they are the judicious mix of revenue as well as capital expenditures. Here, capital expenditure helps in producing more output for consumption in the future.
Making dams, developing infrastructure and setting up new factories are examples of investment the government makes. Besides, the government makes transfer payments also to make welfare of people, today. Again, MPC and MPS apply and the saved money goes to capital investment. That helps the future.