Economics Tuition – Using the Production Possibility Curve, explain how an increase in government spending contributes to economic growth
Economic growth refers to the growth of production, seen in terms of actual and potential production capacity. Actual economic growth, also known as short term growth, is commonly measured in terms of a percentage change in the real Gross Domestic Product (GDP). The Production Possibility Curve (PPC) illustrates the resource and production capacity an economy can attain with the given amount of resources and level of technology.
The increase in government expenditure, such as the provision of subsidies to consumers, raises consumption and investment, so as to raise aggregate demand, production and national output. Consequently, production level contributes to an increase in the actualized production of goods and services, thus achieving higher actual economic growth.
As seen from the PPC, the increase in government spending contributes to the shift of the production level from point A to point B, thus attaining actual economic growth.
This article is contributed by Mr. Simon Ng, founder and principal JC Economics Tutor of Economicsfocus, who has 20 years of teaching experience. Currently, Mr. Simon Ng provides specialized Economics Tuition and GP Tuition. To read more articles on Economics issues and skills development, please refer to the JC Economics Essays blog.