• As opposed to a movement along the PPC described above, the entire PPC of an economy can shift inwards or outwards

Outward shifts of a PPC show economic growth & inward shifts show economic decline

Diagram Explanation

• Economic growth occurs when there is an increase in the productive potential of an economy

  • This is demonstrated by an outward shift of the entire curve. More consumer goods and more capital goods can now be produced using all of the available resources

  • This shift is caused by an increase in the quality or quantity of the available factors of production

    • One example of how the quality of a factor of production can be improved is through the impact of training and education on labor. An educated workforce is a more productive workforce and the production possibilities increase

    • One example of how the quantity of a factor of production can be increased is through a change in migration policies. If an economy allows more foreign workers to work productively in the economy, then the production possibilities increase

      
      
      
      

• Economic decline occurs when there is any impact on an economy that reduces the quantity or quality of the available factors of production

  • One example of how this may happen is to consider how the Japanese tsunami of 2011 devastated the production possibilities of Japan for many years. It shifted their PPC inwards and resulted in economic decline