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Capital Growth
Let us turn to the question of economic growth and see what happens to the production possibilities curve when the economy’s productivity capacity increases over time. As already pointed out, the production possibility curve is drawn with a given amount of productive resources like land, labour and capital equipment. Now, if these productive resources increase, the production possibility curve will shift outward and to the right showing that more of both goods can be produced than before.
Further, when the economy makes progress in technology, that is when the scientists and engineers discovered new and better ways of doing things the production possibility curve will shift to the right and will indicate the possibility of producing more of both the goods with a given and fixed amount of resources.
From above it follows that when the supplies of resources of increase or an improvement in technology occurs, the production possibility curve shifts outward such as from PP to P’P’ on production possibility curve P’P’, the economy can produce more goods than on the production possibility curve PP. the increase in the amount of capital, natural and human resources and the progress in technology are determinants of economic growth. Thus, switch the growth of the economy production possibility curve shifts outward.
It is very important to understand the distinction between (i) the movements of the economy from a point inside the production possibility curve to a point on it, such as from point U to point Q and (ii) the movement of the economy from the production possibilities curve to another. In both these cases national product and output of goods and services will increase. But the former involves fuller employment of the given resources while the latter involves the increase in resources or productive capability. While the first type of movement is dealt with by the short-run macroeconomic growth. The fact that in both these movements of the economy the national product and income income increases they are likely to be confused each other.
On the other hand when the economy is fully utilizing its given resources and is, therefore working at appoint in the production possibility curve, the increase in national output and employment cannot be achieved by simply raising aggregate demand. Under such circumstances national income and employment can be increased by adopting measures which generate economic growth. These measures aimed at generating economic growth involve stepping up of rate of capital accumulation and making a progress in technology.
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Further, when the economy makes progress in technology, that is when the scientists and engineers discovered new and better ways of doing things the production possibility curve will shift to the right and will indicate the possibility of producing more of both the goods with a given and fixed amount of resources.
From above it follows that when the supplies of resources of increase or an improvement in technology occurs, the production possibility curve shifts outward such as from PP to P’P’ on production possibility curve P’P’, the economy can produce more goods than on the production possibility curve PP. the increase in the amount of capital, natural and human resources and the progress in technology are determinants of economic growth. Thus, switch the growth of the economy production possibility curve shifts outward.
It is very important to understand the distinction between (i) the movements of the economy from a point inside the production possibility curve to a point on it, such as from point U to point Q and (ii) the movement of the economy from the production possibilities curve to another. In both these cases national product and output of goods and services will increase. But the former involves fuller employment of the given resources while the latter involves the increase in resources or productive capability. While the first type of movement is dealt with by the short-run macroeconomic growth. The fact that in both these movements of the economy the national product and income income increases they are likely to be confused each other.
On the other hand when the economy is fully utilizing its given resources and is, therefore working at appoint in the production possibility curve, the increase in national output and employment cannot be achieved by simply raising aggregate demand. Under such circumstances national income and employment can be increased by adopting measures which generate economic growth. These measures aimed at generating economic growth involve stepping up of rate of capital accumulation and making a progress in technology.
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