Which of the following situations leads to economic growth?

• A. A reduction in investment in capital goods
• B. A decrease in the labor force participation rate
• C. An increase in the productive capacity of an economy
• D. A rise in unemployment rates

Answer: (C)

Verified step by step guidance

1. Understand the concept of economic growth: Economic growth refers to an increase in the productive capacity of an economy, meaning the economy can produce more goods and services over time.
2. Analyze each option in terms of its effect on productive capacity:
3. A reduction in investment in capital goods typically decreases future productive capacity because fewer machines, tools, and infrastructure are available for production.
4. A decrease in the labor force participation rate means fewer people are working or looking for work, which reduces the available labor input and thus can lower productive capacity.
5. An increase in the productive capacity of an economy directly means the economy can produce more, which is the definition of economic growth, making this the correct choice.