Is increased capital spending the only way for an economy to expand its production possibilities frontier?
a. Yes, because capital is the only constraining resource that limits growth.
b. Yes, although more capital clearly has a high opportunity cost.
c. No, an economy can also grow by investment instead of capital spending.
d. Yes, more capital is the only way to expand its production possibilities frontier.
e. No, an economy can also expand by invention and innovation.

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UpStudy AI · Accepted Answer

To determine the correct answer, let's analyze the options regarding how an economy can expand its production possibilities frontier (PPF):

1. **Understanding the PPF**: The production possibilities frontier represents the maximum output combinations of two goods that an economy can achieve when all resources are fully and efficiently utilized.

2. **Factors that can shift the PPF**:
   - **Increased capital**: More capital can lead to greater production capacity.
   - **Labor force growth**: An increase in the workforce can also expand production capabilities.
   - **Technological advancements**: Innovations can improve efficiency and productivity, allowing for more output with the same resources.
   - **Resource discovery**: Finding new resources can also shift the PPF outward.

Now, let's evaluate the options:

a. **Yes, because capital is the only constraining resource that limits growth.**  
   - This is incorrect because there are multiple factors that can limit growth, not just capital.

b. **Yes, although more capital clearly has a high opportunity cost.**  
   - While capital investment does have opportunity costs, this statement is still too narrow as it ignores other growth factors.

c. **No, an economy can also grow by investment instead of capital spending.**  
   - This is misleading; investment typically refers to capital spending.

d. **Yes, more capital is the only way to expand its production possibilities frontier.**  
   - This is incorrect as it overlooks other factors that can shift the PPF.

e. **No, an economy can also expand by invention and innovation.**  
   - This is correct. Invention and innovation can lead to more efficient production methods and new products, thus expanding the PPF.

Based on this analysis, the correct answer is:

**e. No, an economy can also expand by invention and innovation.**
An economy can expand its production possibilities frontier through invention and innovation, not just by increasing capital spending.

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