Production Possibility Frontier is by 2Alffe


									Production Possibility Frontier is interpreted as showing the various combinations
of consumption goods (C) and investment goods (I) that characterize a wholly
private economy. This construction allows the supply constraint, which underlies
classical theorizing, and the demand constraint, which can be derived from the
relationship between income and expenditures, to be displayed on the same axes. The
PPF assumes that all inputs are used efficiently.

        Capital Goods



The diagram shows that two countries having the same PPF have opted for two different
growth paths. First Country has higher degree of investment and moves from A toB by
consuming less and saving more.
The Second country consumes more initially at C and saves less. This allows a much
lower expansion of the PPF, resulting in less both consumption and investment in future.
So we the illustration shows and we conclude that a high rate of savings is a necessary
condition for a high rate GDP growth or economic growth.

Mixed Economy : Within mixed economy, government policy can make a positive
difference towards economic growth by taking suitable measures regarding savings in
economy. Government should make it a part of its policy to make savings compulsory, or
provide effective incentives for people to postpone consumption e.g. increased taxes.
There may be a chance that government may have to do the investment themselves,
having enforced savings through taxation. An alternative is to borrow the funds from
other governments and paying back the interest from future growth. In addition to it, the
growth oriented government should focus more on research and development, and
developing the skills of its workers.

Command and Market Economy: In a Command Economy, government controls all
aspects of economic activity, therefore the government in such an economy controls
savings, investments and consumption by public too. Taxes are levied after certain limit
of income. The areas in which investment can be made by public are also limited and
specified by government. Savings are low, consumption is moderate and the funds are
concentrated in the hands of government. It is good at achieving specific objectives but
bad at achieving growth through greater efficiency.
In market economy, consumption and savings are on higher side. Consumption is higher
than saving. People are free to invest in any business they like. Government holds fewer
funds with itself. Therefore, we can say that mixed provides a better solution for
economic growth by giving a good balance between savings and investments.


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