📚 Learning Guide
Economic Growth and Resource Allocation
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If a country reallocates resources from consumer goods to capital goods, what is the most likely long-term effect on its economy?

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Choose the Best Answer

A

Increase in economic growth due to enhanced productivity

B

Immediate increase in consumer satisfaction

C

Decrease in overall GDP in the short run

D

Higher unemployment rates in the consumer goods sector

Understanding the Answer

Let's break down why this is correct

Answer

When a country decides to shift its resources from making consumer goods, like clothes and food, to producing capital goods, such as machinery and buildings, it is focusing on future growth. Capital goods help businesses operate more efficiently and increase production over time. For example, if a factory invests in new machines, it can produce more products faster, leading to more sales and profits. In the long run, this investment can boost the economy by creating more jobs and increasing overall wealth. Therefore, while immediate consumer goods may be fewer, the country is likely to experience stronger economic growth and improved living standards in the future.

Detailed Explanation

When a country focuses on making capital goods, it builds things like factories and machines. Other options are incorrect because Some might think that shifting resources will quickly make people happier; It's a common idea that changing resources will hurt the economy right away.

Key Concepts

Economic Growth
Resource Allocation
Capital Formation
Topic

Economic Growth and Resource Allocation

Difficulty

medium level question

Cognitive Level

understand

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