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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. - Economics

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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.

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Solution

When an economy is producing below its potential level because of unemployment, it implies that the economy is not functioning on the PPC but below the PPC, i.e. Point P as shown in the below diagram. Given the resources and technology, along with the initiation of government schemes, the employment level will increase. Therefore, Point P will shift nearer to PPC.

Concept: Concepts of Production Possibility Frontier
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