Question
Suppose an economy experiences an increase in unemployment across all industries. What is the result of this increase in unemployment on the production possibilities curve?
a. The curve would shift inward because labor is considered a factor of production. By reducing productive resources, the maximum level of production will decrease.
b. The level of unemployment has no effect on the production possibilities curve, so there would be no change to the production possibilities curve.
c. The slope of the production possibilities curve would decrease because an increase in unemployment would decrease the maximum level of production.
d. The curve would shift outward because labor is considered a factor of production. By increasing productive resources, the maximum level of production will increase.
a. The curve would shift inward because labor is considered a factor of production. By reducing productive resources, the maximum level of production will decrease.
b. The level of unemployment has no effect on the production possibilities curve, so there would be no change to the production possibilities curve.
c. The slope of the production possibilities curve would decrease because an increase in unemployment would decrease the maximum level of production.
d. The curve would shift outward because labor is considered a factor of production. By increasing productive resources, the maximum level of production will increase.
Answers
GPT-4o mini
The correct answer is:
**b. The level of unemployment has no effect on the production possibilities curve, so there would be no change to the production possibilities curve.**
The production possibilities curve (PPC) represents the maximum potential output of an economy given its resources and technology. An increase in unemployment does not change the resources available in the economy; it only indicates that some of those resources (in this case, labor) are underutilized. Therefore, while the economy may not be operating at full capacity due to higher unemployment, the PPC itself remains unchanged. It simply reflects that the economy is operating inside the curve rather than on it.
**b. The level of unemployment has no effect on the production possibilities curve, so there would be no change to the production possibilities curve.**
The production possibilities curve (PPC) represents the maximum potential output of an economy given its resources and technology. An increase in unemployment does not change the resources available in the economy; it only indicates that some of those resources (in this case, labor) are underutilized. Therefore, while the economy may not be operating at full capacity due to higher unemployment, the PPC itself remains unchanged. It simply reflects that the economy is operating inside the curve rather than on it.