Question

Increasing the amount of consumption spending and reducing the amount of savings ________ investment expenditures, and ________ long-run economic growth in the economy.

A) decreases; decreases
B) decreases; increases
C) increases; decreases
D) increases; increases

Answer 1

Increasing consumption spending and reducing savings increases investment expenditures and long-run economic growth.

Step-by-step explanation:

Increasing the amount of consumption spending and reducing the amount of savings increases investment expenditures, and increases long-run economic growth in the economy.

This is because consumption spending is a component of aggregate demand (AD), which represents the total spending in the economy. When consumption spending increases, it leads to a higher level of AD, which in turn stimulates investment expenditures by businesses. This increased investment can contribute to long-run economic growth.

For example, when individuals spend more on goods and services, businesses may need to invest in expanding their production capacity to meet the increased demand. This investment can lead to job creation, higher incomes, and overall economic growth.