Draw a Production Possibilities Frontier with the Government Spending Share

question 59

Essay

Draw a production possibilities frontier with the government spending share on the horizontal axis and the nongovernment share of GDP on the vertical axis. All else being equal, assume there is an increase in government purchases.
(A) Use the prochuction possibilites frantier to show what happens.
(B) Daes yaur answer ta part (A) carrespand to what the spenfing allacation madel wauld predict?
(C) Campared to the production passibilities curve analysis, what adritional insight does the spending macation model intradce?

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Definitions:

National Income

The total amount of money earned within a country from production and services over a specific time period.

Opportunity Cost

Dismissing potential benefits from other possible choices by focusing on one.

Scarce Resources

Natural or human resources that are limited in supply and cannot fulfill all wants and needs due to their finite availability.

Free Lunch

An idiom expressing the idea that it is impossible to get something for nothing; in economics, it refers to the impossibility of getting a benefit without a cost.