📚 Learning Guide
Investment and Long-Run Supply
easy

Investment spending primarily affects long-run aggregate supply by facilitating __________, which enhances productivity.

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
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Choose the Best Answer

A

consumption

B

capital formation

C

government spending

D

labor supply

Understanding the Answer

Let's break down why this is correct

Answer

Investment spending primarily affects long-run aggregate supply by facilitating capital accumulation, which enhances productivity. When businesses invest in new machinery, technology, or infrastructure, they improve their ability to produce goods and services more efficiently. For example, if a factory buys a new automated assembly line, it can produce more products in less time and with fewer workers, leading to higher overall output. This increase in production capacity allows the economy to grow and meet the demands of consumers more effectively. Therefore, investment is crucial because it builds the tools and resources that help workers be more productive over the long term.

Detailed Explanation

Investment spending helps build new tools, machines, and buildings. Other options are incorrect because Some might think that spending by consumers is the main factor; People may confuse government spending with investment.

Key Concepts

Investment and Long-Run Supply
Capital Formation
Productivity
Topic

Investment and Long-Run Supply

Difficulty

easy level question

Cognitive Level

understand

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