Recession Causes Inefficient Production on PPC

Steps:

• PPC shows maximum output combinations at full employment.
• Point X represents full employment on the PPC frontier.
• Recession increases unemployment to 5%, underutilizing resources.
• This moves production inside the PPC to point Y, showing reduced efficiency.

Why A is correct:

• A depicts movement from X on the PPC to Y inside it, matching the definition of cyclical unemployment causing productive inefficiency.

Why the others are wrong:

• B shows movement along the PPC, indicating resource reallocation, not unemployment.
• C shows an outward PPC shift, representing economic growth, not recession.
• D shows an inward PPC shift, indicating resource loss or destruction, not temporary unemployment.

Final answer: A