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Effects of High Unemployment on a Country's PPC

Question

In 2016, the Indonesian government increased its spending on healthcare and education and considered raising the school leaving age. The government also planned to increase taxation. Such a move might conflict with its aim of reducing unemployment at a time when a number of countries were at risk of entering a recession

Analyse, using a production possibility curve (PPC) diagram, the effects of high unemployment in a country. [6]

Category:

Macroeconomic Factors and Policies

[CIE O level November 2018]

Preview Answer


Step ➊ : Define production possibility curve and unemployment.

The production possibility curve represents the maximum amount of goods and services which can be produced in an economy if all resources are used efficiently. A production possibility curve can also be used to illustrate unemployment. Unemployment occurs when people are able, available and willing to work at the going wage but cannot find a job despite an active search for work.


Step ➋ : Illustrate high unemployment using a production possibility curve.

The impact of high unemployment on the production possibility curve is shown in the figure below.

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