The Figure Depicts a Shift in a Society's Production Possibilities

question 120

Multiple Choice

The figure depicts a shift in a society's production possibilities frontier (PPF) for the manufacture of trains and planes: train-manufacturing capacity expands while plane-manufacturing capacity shrinks. Refer to this figure to answer the following questions.

-Which point represents an efficient level of output both before and after the shift?

• A) point A
• B) point B
• C) point C
• D) point D
• E) point E

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Definitions:

Nominal Interest Rate

The interest rate before adjustments for inflation; the stated or face interest rate on a loan or investment.

Real Rate of Interest

Real Rate of Interest is the interest rate that has been adjusted to remove the effects of inflation, providing a more accurate measure of the cost of borrowing.

Rate of Inflation

This refers to the annual percentage increase in the general price level of goods and services in an economy over a period of time.