Chapter 37, Problem 6MCQ

To determine

To know: Long run economic growth depends upon which factor.

Answer to Problem 6MCQ

The correct option is B.

Explanation of Solution

B. Investment

Economic growth is the increase in the value of production of goods and services. It increases when labor and capital increases. However, in long-run, economic growth reaches at a point where there is stability in production of goods and services. However, it increases only when there is an increase in investment. The more the level of investment is, the more is the long-run economic growth.

The option A is incorrect.

Capital stock is a factor that increases economic growth but only applicable in short-run. This is a factor that increases the output up to a certain point, later on starts giving diminishing returns.

The option C is incorrect.

Consumption is another factor that increases economic growth. As more is the consumption level of an economy, more is the production to match it, thereby leading to economic growth. This is also a short-term factor of economic growth.

The option D is incorrect.

Aggregate demand is the total demand of the economy. The more is the aggregate demand, the more is the economic growth of the economy. In the long-run, aggregate demand becomes relatively stable.

The option E is incorrect.

Short run aggregate supply does not affect the long run economic growth as in short-run certain factors of production are fixed while in long-run, all factors of production are variable.

Economics Concept Introduction

Introduction:

Long run economic growth is the capability of country to produce goods and service over a period of time when all the factor of production are variable. This is inflation adjusted growth in long-run.