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Production in an economy is below its potential due to unemployment. Government starts employment generation schemes. Explain its effect using production possibilities curve. |
Answer» Solution :UNEMPLOYMENT in economy leads to underutilization of RESOURCES which compels an economy to remain on less efficient PPC. HENCE the AD should be raised to increase employment. So the government should start some schemes through which can be generated. As a result the point of actual operation will MOVE to or move nearer to the situation where there is a no unemplyment. We can see in the diagram, P is the point of operation will move on to the right side of Production Possibility curve when the new employment schemes will be introduced. The point of operation shifts from point P to point M or T or any other point on the production possibility curve AB. 
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