Production in an economy is below its potential due to unemployment. Government starts employment generation schemes. Explains its effect using production possibilities curve.

Explanation

Production below the potential means that total production in the economy is somewhere below the production possibility curve PP', for example at point U in the diagram.

When government starts employment generation schemes, and since the below potential production is due to unemployment, the economy moves forward in its attempt to remove unemployment and each the potential. The movement forward is towards the PP' curve.