PPC Shifts and Movements from Resource and Demand Changes

Steps:

• Original PPC 3 shifts inward to PPC 2 due to falling working population, reducing productive capacity.
• Long recession causes underutilization, moving production inside PPC 2 from a frontier point to a lower-output point.
• During recession, an increase in production means moving along inside PPC 2 toward higher output without reaching the frontier.
• Increase in GDP later shifts PPC outward to 1, but recession movement is pre-shift.

Why A is correct:

• From r to s represents movement inside PPC 2 during recession, increasing output via better resource use (PPC definition: interior points show inefficiency).

Why the others are wrong:

• B: r to u crosses to PPC 1, indicating post-recession GDP growth, not during recession.
• C: s to t moves toward PPC 2 frontier, but recession implies falling, not rising, efficiency.
• D: t to u jumps from PPC 2 to 1, reflecting capacity expansion, not recession-period increase.

Final answer: A