At which point on a country's production possibilities frontier (PPF) is its future growth rate likely to be the highest, and why?

• A. When the country produces only consumer goods, because this maximizes current consumption.
• B. When the country allocates resources equally between capital and consumer goods, because this balances growth and consumption.
• C. When the country allocates more resources to capital goods rather than consumer goods, because investing in capital increases productive capacity.
• D. When the country operates inside the PPF, because unused resources can be quickly mobilized for growth.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of the Production Possibilities Frontier (PPF). The PPF represents the maximum possible output combinations of two goods (e.g., capital goods and consumer goods) that an economy can produce given its resources and technology.
2. Step 2: Recognize that capital goods are goods used to produce other goods in the future, such as machinery and equipment, while consumer goods are goods used for immediate consumption.
3. Step 3: Analyze how allocating resources affects future growth. Producing more capital goods means investing in the economy's productive capacity, which can shift the PPF outward over time, leading to higher future growth.
4. Step 4: Compare the options: producing only consumer goods maximizes current consumption but does not enhance future productive capacity; allocating resources equally balances current consumption and investment; allocating more to capital goods prioritizes future growth.
5. Step 5: Conclude that the highest future growth rate is likely when the country allocates more resources to capital goods rather than consumer goods, because this investment increases the economy's ability to produce more in the future.