MC Qu. 45 Use the figure below to answer...

Use the figure below to answer the next question.

The horizontal axis is labeled consumer goods and lists markings from left to right as B and D. The vertical axis is labeled capital goods and lists markings from bottom to top as A and C. Two concentric curves are drawn from the vertical axis to the horizontal axis and the curves' overall shape is a quarter circle, approximately. First curve initiates from A and ends at B and the second curve initiates from C and ends at D. First curve has two points marked as Z and X. A point marked as Y is plotted on the second curve to the right. X and Y lies in a straight line at an approximately 45 degree angle with the origin.

The most likely cause of a shift from AB to CD would be a(n)

Question

MC Qu. 45 Use the figure below to answer...

Use the figure below to answer the next question.

The horizontal axis is labeled consumer goods and lists markings from left to right as B and D. The vertical axis is labeled capital goods and lists markings from bottom to top as A and C. Two concentric curves are drawn from the vertical axis to the horizontal axis and the curves' overall shape is a quarter circle, approximately. First curve initiates from A and ends at B and the second curve initiates from C and ends at D. First curve has two points marked as Z and X. A point marked as Y is plotted on the second curve to the right. X and Y lies in a straight line at an approximately 45 degree angle with the origin.

The most likely cause of a shift from AB to CD would be a(n)

BlackTom AI · Accepted Answer

To analyze the question, first restate what the figure represents: two production possibility frontiers (PPFs) drawn as quarter circles, with AB representing the initial frontier and CD representing a farther-out frontier. Moving from AB to CD indicates that the economy can produce more of both capital goods and consumer goods than before, given the same resource base.

Option 1: increase in the price level. A higher price level affects nominal values and the purchasing power of money, but it does not shift the production possibility frontier itself. The PPF is determined by real resources and technology, not by general price level changes, so this would not cause theAB curve to shift outward to CD.

Option 2: increase in productivity. Productivity improvements mean that the same inputs yield more output. This expands the economy’s production capacity and rotates or shifts the PPF outward from AB to CD. On the graph, more of both goods becomes feasible, consistent with the outer curve CD being farther from the origin than AB.

Option 3: decrease in the size of the labor force. A smaller labor force reduces the economy’s capacity to produce goods, which would shift the PPF inward toward the origin, not outward to CD. The effect described would move from AB toward a point inside the original frontier, opposite to the observed shift to CD.

Option 4: recession. A recession typically implies reduced production and utilization of resources, pushing actual output below potential rather than expanding potential output. As with the previous option, a recession would likely cause an inward or stagnating movement, not the outward shift from AB to CD described here.

In summary, among the choices, only an increase in productivity logically explains the outward shift from AB to CD on the PPF diagram, while the other options fail to account for a greater, rather than lesser, production capacity or misinterpret the effect of price changes on production frontiers.

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