APFIVE Fiscal Policy and Production Possibilities Frontier
A country increases government spending without raising taxes, causing interest rates to rise from 3% to 5%. What is the most likely long-run consequence for the economy’s production possibilities frontier?
A
The PPF will shift outward less than it would have otherwise
B
The PPF will remain unchanged but with different production points
C
The PPF will shift inward only in capital-intensive sectors
D
The PPF will shift outward more rapidly due to multiplier effects
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