Investing contributes to economic growth in which of the following ways?

Question

(1 point)
Investors diversify their portfolios to minimize risk in the economy. Investors can invest in a bunch of
different stocks to minimize their risk which causes economic growth.
Investors earn returns money on their investments, which increases their economic well-being.
Investor funds are loaned to firms, who use borrowed funds to purchase capital. Funds from
investors are used by firms to purchase capital which leads to economic growth.
Investors pool their funds into financial intermediaries that earn them larger returns. Investors can
invest their money into mutual funds to cause economic growth.

Answer 1

Investing contributes to economic growth primarily in the following way:

Investor funds are loaned to firms, who use borrowed funds to purchase capital. Funds from investors are used by firms to purchase capital which leads to economic growth.

This statement accurately reflects a primary mechanism through which investing contributes to economic growth. When investors provide funds to firms, whether through direct investment or via financial intermediaries, those funds are often used for capital expenditures, such as purchasing equipment, expanding operations, or developing new products. This investment in capital goods increases productivity, which can lead to economic growth and job creation.

The other statements highlight aspects of investing but do not directly explain how investing leads to economic growth as clearly as the third statement does. For example, while diversification can help minimize risk for investors, it doesn't inherently promote growth. Similarly, earning returns contributes to individual economic well-being but does not directly translate to broader economic growth.