Snowdonia is a small country which produces wrought iron and cheesecakes and is experiencing fixed capacity growth in year 1.

Which part of the business cycle is Snowdonia in?
a. recovery
b. peak
c. trough
d. recession

Fixed capacity growth is demonstrated on the graph as a movement from point ___ to point _.
Long‑run growth in Snowdonia would be illustrated on the graph as a movement from point _ to point ___.

WORD BANK
Point A
Point B
Point C

In the short run, economic growth is limited because an economy has only a finite level of resources. During a recession, output drops below the level it would have if all resources were used. This situation is depicted on a production possibility frontier by a point inside the curve, such as point C.

As the economy pulls up out of the recession, production increases back to the full employment level, moving the economy from point C to point A. At this point, the economy is producing as much as it can without an increase in resources. Fixed capacity growth means the resources are fixed in the economy . The growth occurs due to proper utilization of resources. So the economy grows from an inefficient point to an efficient point on PPF.

In the long run, however, technology improvements, increases in the capital stock, and increases in the quantity and skill of labor increase the capacity of the economy, shifting the PPF outward. This long‑run growth is depicted as a movement from point A on the PPF for year 1 to point B on a new PPF which is farther from the origin and represents an increase in productive capacity.