Answer to Question #95260 in Economics of Enterprise for Davronbek

Question

1. Government decides to spend $30 billion on defense and $40 billion education. Plot this combination on the PPC. a. Describe the point you have drawn on the graph. b. Is this a desirable combination of the two goods for the US to chose? Why or Why not?

Answer 1

PPC shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed.

The point on the graph shows that the government can spend 30 billion on defense or 40 billion on education.

Goverment spending on national defense is considered to be a consumer good. Defense spending protects people within a country, but it doesn't increase the economy's productive capacity . Thus, country consumes defense much like we do other services that country values but that do not contribute to economic growth.

Education is like capital good. Because in the long term period it contributes to economic growth.

Regarding this point , the US prefers investing in education which is more likely to affect the countries economic growth in the future