Production in an economy is below its potential due to unemployment. Government starts employment generation schemes. Explain its effect using PPC.

Production in an economy is below its potential due to unemployment. G

1.	Production in an economy is below its potential due to unemployment. Government starts employment generation schemes. Explain its effect using PPC.
Answer» Solution :PPC REPRESENTS different COMBINATION of two goods which can be produced with given resources ASSUMING (i) Resources are fully and efficiently utilised (ii) Technique of PRODUCTION remains unchanged. Due to unemployment, an economy operates inside the PPC (POint M and point N) implying under utilisation of resources. If the GOVERNMENT starts employment generation schemes, the output will increase and may lead to fuller utilisation of resources on PPC AB.