Production in an economy is below its potential due to unemployment. Government starts employment generation schemes. Explain its effect using Production Possibilities Curve.
When the economy is below its potential due to unemployment, the economy operates inside the PPC. When the government starts employment generation scheme, it enables the economy to utilise its existing resources in the optimum manner. The resources which were sitting idle, now get job and the economy functions at its maximum capacity and moves from inside the PPC to points on the PPC.
Thus, economy moves from point ‘a’ below PPC to any point on PPC as shown in the above diagram.
