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Economic Growth and Resource Allocation
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Which of the following scenarios best illustrates the impact of reallocating resources from consumer goods to capital goods on long-term economic growth?

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Choose the Best Answer

A

A country reduces its production of smartphones to build more factories, leading to increased manufacturing capacity in the future.

B

A nation decides to produce more luxury cars rather than investing in renewable energy technology, resulting in immediate consumer satisfaction.

C

A government invests heavily in advertising for consumer products instead of infrastructure, boosting short-term sales but neglecting long-term productivity.

D

A society increases its focus on producing food items to meet current demands, ensuring immediate consumption needs are met.

Understanding the Answer

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Answer

When resources are shifted from producing consumer goods, like toys and clothes, to capital goods, such as machines and factories, it can lead to long-term economic growth. Capital goods help businesses produce more efficiently and increase their output over time. For example, if a company invests in new machinery, it can make more products at a lower cost, which can lead to higher profits and possibly create more jobs. This increased production capacity supports economic growth because it allows for more goods and services to be available in the future. Therefore, reallocating resources in this way can strengthen the economy over time by improving productivity and innovation.

Detailed Explanation

When a country makes fewer smartphones and builds more factories, it can produce more in the future. Other options are incorrect because Focusing on luxury cars feels good now, but it doesn't help the economy grow later; Spending on ads boosts sales today, but it ignores building better roads or bridges.

Key Concepts

Resource Allocation
Capital Formation
Economic Growth
Topic

Economic Growth and Resource Allocation

Difficulty

hard level question

Cognitive Level

understand

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