China's State Council has encouraged more spending to "improve transportation links and other infrastructure...." It will also "step up its spending on vocational training and other educational programs for adults." www.nytimes.com, Keith Bradsher, October 19, 2008
Suppose that capital goods are on the vertical axis while consumption goods are on the horizontal axis of China's PPF. As a result of enacting the policies, we would expect
I. an expansion of China's production possibilities.
II. capital accumulation.
III. an increase in human capital.
A) I and II only
B) I, II and III
C) I and III only
D) II and III only

Question

Quizplus · Accepted Answer

By encouraging more spending on improving infrastructure and vocational training, China is investing in both physical capital (capital goods) and human capital (education and training programs), which will lead to an increase in capital accumulation and an increase in human capital. This expansion of both types of capital will shift the production possibilities frontier outward, leading to an expansion in China's production possibilities. Therefore, all three statements (I, II, and III) are true, making choice B the correct answer.

China's State Council Has Encouraged More Spending to "Improve Transportation