Suppose there are two countries, Here and There, which have identical amounts of resources, identical technologies, and identical populations. Both produce two types of goods-consumer goods and capital goods-and they both always operate on their production possibilities frontiers. The only difference is that this year Here chooses to produce relatively more consumer goods than There. What will happen as a result?
A) Here will have a higher living standard this year but will grow slower than There.
B) Here will have a higher living standard this year and will grow faster than There.
C) There will have a higher living standard this year but will grow slower than Here.
D) There will have a higher living standard this year and will grow faster than Here.

Question

Quizplus · Accepted Answer

Producing more consumer goods means that Here is sacrificing the production of capital goods, which are necessary for future economic growth. Therefore, Here will have a higher living standard in the short run, but will grow slower in the long run compared to There, which is producing more capital goods.

Suppose There Are Two Countries, Here and There, Which Have