Why pushing out the production possibility frontier makes sense
Picking out a few data points helps illustrate this move. For example, the new economy can produce 75 cars and 23 airplanes.
This example is highly relevant because it illustrates the importance of implementing productivity-enhancing technologies. Moreover, it’s something that rings true even in an economic slowdown. For example, consider a downturn in an economy with the new production possibility frontier below. As discussed above, any point within the area indicates an economy not producing at full capacity, or a slowdown.
One such point is, say, 75 cars and 15 airplanes. However, that production level is still superior to the 75 cars and 10 airplanes in the original PPF line above. In other words, adopting the new technology means the economy can produce more in a slowdown than when the economy is firing on all cylinders in the previous example.
This illustrates that spending on productivity-enhancing technologies will likely persist even in a slowdown. As such, investing in technology stocks, such as IoT companies that can push out the PPF is likely to be a successful strategy, as adoption of their solutions will grow across many industries once it becomes clear that the PPF is being expanded.