Question

What are the two major ways in which an economy can grow and push out its production possibilities curve?

1. Better weather and nicer cars
2. Higher taxes and lower spending
3. Increases in resource supplies and advances in technology
4. Decreases in scarcity and advances in auditing

Short answer

Option (c) Increase in resource supplies and advances in technology.

Step-by-step solution

Explanation for the correct answer

An increase in resource supplies will multiply the possibilities of producing more goods. On the other hand, advanced technology will catalyze the process of production.Thus, the increase in the supply of resources and technological advances will help the economy to increase overall production.

As the production rises, the available combinations in the economy increase significantly. So, the production possibilities frontier will move outside, and the economy will grow.

Explanation for the incorrect answers

Option (a): The production possibilities curve depends upon the resources required to produce the goods. Better weather can be one of the supportive conditions for manufacturing a good, but it cannot constitute all the resources for production. On the contrary, nicer cars are themselves a product, not a resource. Therefore, better weather and nicer cars will not help the production possibilities curve to move out and grow the economy.

Option (b): Higher taxes will reduce the income and purchasing power of an individual, such as his spending decreases. The lower spending will further lower the income generation in the economy. The economy will not have the capacity to consume nor to produce more. Therefore, higher taxes and lesser spending will pull the production possibilities curve inside, and the economic growth will slow down.

Option (d): Scarcity is permanently in the economy. Any individual or economy can only control the wants for some time. Controlling the wants does not mean that the production has increased. Also, advances in auditing can ensure the quality of output. It will not increase the quantity of production and income generation to help the economy grow. So, the PPF curve will not shift outwards, leading to a decrease in the scarcity and an advance in the audit.