Economists agree that an economy cannot grow without savings. This means forgoing current consumption, saving, and investing in capital goods. Using the production possibility frontier curve, explain the tradeoff between current consumption and savings and how this impacts economic growth.

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Economists agree that an economy cannot grow without savings. This means forgoing current consumption, saving, and investing in capital goods. Using the production possibility frontier curve, explain the tradeoff between current consumption and savings and how this impacts economic growth.

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Originally Posted by WilliamsHenry

Economists agree that an economy cannot grow without savings. This means forgoing current consumption, saving, and investing in capital goods. Using the production possibility frontier curve, explain the tradeoff between current consumption and savings and how this impacts economic growth.

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Economic growth is one of the macro-economic aims that every economy needs to achieve. Economies change over time. Part of this change involves changes in productive capacity – the ability to produce goods and services. Increases in productive capacity are known as Economic Growth (Alain A. 2001:164).



In diagram A, economy cannot produce at E but can produce at A, B, C or D (but at D it is a wastage of resources).

In diagram B, with an advance in technology or new resources discovered may move the PPC from PP to QQ. Economic growth in the quantity or quality of the inputs to the production process means that an economy has increased its productive potential. This is shown by a shift to the right of the PPF (PP to QQ). It enables country to move from X to Y.