Draw a Production Possibilities Frontier with the Government Spending Share

question 26

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 production possibilities frontier to show what happens.
(B)Does your answer to part (A)correspond to what the spending allocation model would predict?
(C)Compared to the production possibilities curve analysis,what additional insight does the spending allocation model introduce?

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