Production in an economy is below its potential due to unemployment. Government starts employment generation schemes. Explain its effect using production possibilities curve.
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Explanation:
As initially, the production in the economy is below its potential due to unemployment, this suggests that the economy is operating at a point below the Production Possibility curve (PPC). As the government starts employment generation schemes, the unemployed resources get utilised.
PPC is said to be the curve that shows all the combinations of two goods that can be produced in an economy with the fuller utilisation of the given resources in the most efficient way. ... Thus, if there is unemployment or inefficient use of resources in an economy then the point on the PPC will shift below the PPC.
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