question_answer

Production in an economy is below its potential due to unemployment. What will be the affect of employment generation schemes on Production Possibility Curve (PPC)?

Answer:

When the economy is operating below its potential due to employment, the economy operates below the PPC. When the government starts employment generation scheme, it enables the economy to utilise its existing resources in the optimum manner. The resources which were sitting idle now get job and the economy functions at its maximum capacity and moves from inside the PPC to point on the PPC. Thus, economy moves from point ?a? below the PPC to any point on PPC as shown in the diagram.