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Question

Difficulty: MediumDeterminants and Factors Affecting Economic Growth

A nation experiences a sustained increase in productive capacity due to continuous technological innovation and human capital accumulation. How is this primary determinant of economic growth represented on a Production Possibility Curve (PPC)?

  1. A
    A movement from one point to another along an unchanged curve
  2. An outward shift of the entire curveAnswer
  3. C
    An increase in nominal national income driven purely by general price level increases
  4. D
    A redistribution of wealth that improves living standards without expanding physical output

Answer

An outward shift of the entire curve
Economic growth involves an expansion of an economy's aggregate potential output caused by determinants such as technological advancement and capital accumulation. Graphically, an increase in maximum potential output is represented by an outward (rightward) shift of the Production Possibility Curve.

Step-by-Step Solution

1
Identify the primary growth determinant in the scenario
Technological innovation and human capital accumulation increase total productive capacity.
Economic growth is driven by supply-side factors that expand an economy's maximum potential output.
2
Relate an increase in productive capacity to the Production Possibility Curve (PPC)
An expansion of productive capacity shifts the entire PPC outward to the right.
The PPC defines the maximum combinations of goods an economy can produce; increases in factors of production or efficiency shift this boundary outward.

Key Concept

Determinants of Economic Growth and PPC Shifts
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Topics

Determinants and Factors Affecting Economic Growth