Suppose that the government could stimulate spending in one of the following expenditure categories.In which of these categories would the spending increase contribute most to an expansion of production possibilities?

Question

Quizplus · Accepted Answer

Investment in capital goods increases the economy's capacity to produce goods and services. By increasing the stock of physical and human capital, investment in capital goods increases productivity, which leads to an expansion of production possibilities. In contrast, spending on consumption goods, government purchases, and net exports may stimulate growth in the short term but do not increase the economy's capacity to produce in the long term.

Suppose That the Government Could Stimulate Spending in One of the Following