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This diagram shows an outward shift of the Production Possibility Curve (PPC), illustrating how supply-side policies can increase an economy’s productive capacity and long-run economic growth.
Old PPC: Shows the economy’s initial production possibilities.
New PPC: Outward-shifted curve showing increased productive capacity.
Vertical axis measures output of consumer goods.
Horizontal axis measures output of capital goods.
Arrows indicate economic growth caused by successful supply-side policies.
The original PPC (Old) shows the maximum combinations of capital goods and consumer goods an economy can produce with its existing resources and technology.
The outward shift to the new PPC (New) represents economic growth, where the economy can produce more of both capital goods and consumer goods.
Supply-side policies such as investment in education and training, improvements in infrastructure, research and development, and market-oriented reforms increase productivity and efficiency.
When supply-side policies are successful, they expand the quantity and quality of factors of production, shifting the PPC outward rather than causing a movement along it.
Producing more capital goods can further increase future productive capacity, reinforcing long-run growth.
Explore other diagrams from the same unit to deepen your understanding
A diagram illustrating the fluctuations in real GDP over time, including periods of boom, recession, peak, and trough, relative to the long-term trend of economic growth.
This diagram shows the intersection of the aggregate demand (AD) and short-run aggregate supply (AS) curves to determine the equilibrium price level and real GDP.
A diagram showing the Classical model of aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS), used to explain long-run macroeconomic equilibrium.
A Keynesian aggregate demand and long-run aggregate supply (AD–LRAS) diagram showing how real GDP and the price level interact across different phases of the economy, including spare capacity and full employment.
A diagram showing an output (deflationary) gap, where the economy is producing below its full employment level of output (Ye).
This diagram shows how an initial increase in aggregate demand leads to a multiplied increase in national output (real GDP) and price level within the Keynesian framework.
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