Imagine an economy that produces capital goods and consumption goods. What will happen to its production possibilities curve if some of its existing capital stock wears out and is not replaced? How will your answer differ if more than enough capital is produced to replace the capital that wears out?
With less capital (assuming no growth in other resources or technology), this economy will not be able to produce as much as it could before the capital wore out. The production possibilities curve will shift inward, towards the origin. With more capital (assuming no change in other resources or technology), this economy will be able to produce more than it initially could. Its production possibilities curve will shift outward, away from the origin.
You might also like to view...
As a percentage of potential GDP, the largest actual budget deficit occurred in which year?
A. 2015. B. 2007. C. 2001. D. 2009.
The shifts in aggregate demand and aggregate supply as a result of the housing bubble collapse caused output to:
A. fall dramatically immediately. B. stay the same, since the shifts worked in opposite directions. C. fall at a relatively slow rate over time. D. rise temporarily, then fall.
The economy pictured in the figure has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; A B. recessionary; C C. recessionary; B D. expansionary; A
If the Fed wants to increase bank reserves, it can:
A. Buy bonds. B. Raise the discount rate. C. Raise the reserve requirement. D. Sell bonds.