Describe the adjustments in the production possibilities curves in each of the following situations for the United States economy. You should use a graph of a production possibilities curve in your explanation of each scenario. The two goods being produced in the economy are capital goods (or public spending) and consumer goods (or private spending). Place “Capital Goods” on the vertical axis and “Consumer Goods” on the horizontal axis.

a. The economy moves from full employment into a deep recession.
b. The United States experiences a sever plague that kills one-fourth of the population, including many in the labor force.
c. Congress significantly increases government spending for the Department of Defense, a capital good.
d. A new wave of immigration from Canada significantly increases our labor force.

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a. When the economy moves from full employment into a deep recession, the production possibilities curve (PPC) will shift inward. The PPC represents the maximum amount of capital goods and consumer goods that can be produced with the available resources and technology. In a recession, there is a decrease in the overall production capacity of the economy, leading to a reduction in the production of both capital goods and consumer goods.

Here is how you can graphically represent this scenario:
1. Draw the initial PPC representing full employment, with capital goods on the vertical axis and consumer goods on the horizontal axis.
2. Label the point where the PPC intersects both axes as the full employment level of production.
3. Draw a new PPC that is shifted to the left of the original PPC. This represents the reduction in production due to the recession.
4. The new PPC will have a lower maximum quantity of both capital goods and consumer goods that can be produced.

b. When a severe plague reduces the population, including many in the labor force, the production possibilities curve (PPC) will shift inward as well. With a smaller labor force, there will be a decrease in the ability to produce both capital goods and consumer goods.

To graphically represent this scenario:
1. Begin with the initial PPC representing the pre-plague situation, with capital goods on the vertical axis and consumer goods on the horizontal axis.
2. Label the point where the PPC intersects both axes as the initial level of production.
3. Draw a new PPC that is shifted inward, closer to the origin of the graph. This represents the reduction in production due to the decrease in the labor force.
4. The new PPC will have a lower maximum quantity of both capital goods and consumer goods that can be produced.

c. When Congress significantly increases government spending for the Department of Defense, a capital good, the production possibilities curve (PPC) will shift outward. This is because the increased government spending will stimulate economic activity, leading to an increase in the production of capital goods.

To graphically represent this scenario:
1. Start with the initial PPC representing the pre-increase in defense spending situation, with capital goods on the vertical axis and consumer goods on the horizontal axis.
2. Label the point where the PPC intersects both axes as the initial level of production.
3. Draw a new PPC that is shifted outward, away from the origin of the graph. This represents the increase in production due to the increased government spending on capital goods.
4. The new PPC will have a higher maximum quantity of both capital goods and consumer goods that can be produced.

d. When there is a new wave of immigration from Canada that significantly increases the labor force, the production possibilities curve (PPC) will also shift outward. With more labor available, there will be an increase in the ability to produce both capital goods and consumer goods.

To graphically represent this scenario:
1. Begin with the initial PPC representing the pre-immigration situation, with capital goods on the vertical axis and consumer goods on the horizontal axis.
2. Label the point where the PPC intersects both axes as the initial level of production.
3. Draw a new PPC that is shifted outward, away from the origin of the graph. This represents the increase in production due to the increase in the labor force.
4. The new PPC will have a higher maximum quantity of both capital goods and consumer goods that can be produced.