Which of the following statements best describes the relationship between investment and economic growth in the context of introductory economics?

• A. Increased investment can contribute to economic growth, but other factors such as technology and institutions also play important roles.
• B. Economic growth is solely determined by government spending, not investment.
• C. Economic growth occurs only when there is no investment in the economy.
• D. Increased investment alone will guarantee economic growth.

Answer: (A)

Verified step by step guidance

1. Understand the concept of economic growth, which refers to the increase in the production of goods and services in an economy over time, often measured by the growth rate of real GDP.
2. Recognize that investment in economics typically means spending on capital goods like machinery, infrastructure, and technology, which can increase an economy's productive capacity.
3. Analyze how increased investment can lead to economic growth by enhancing the capital stock, improving productivity, and enabling higher output in the future.
4. Consider that while investment is important, other factors such as technological progress, institutional quality, human capital, and government policies also significantly influence economic growth.
5. Conclude that the relationship between investment and economic growth is not one-to-one; increased investment contributes to growth but does not guarantee it alone, as other factors must also be favorable.