Question

How does investment in capital goods relate to a country's gross domestic product (GDP)?

Such investments usually decrease GDP by increasing the prices of most consumer goods.


Such investments usually increase GDP by increasing the skills and knowledge of the country's workforce.


Such investments usually decrease GDP by reducing profits for businesses in the country.


Such investments usually increase GDP by helping businesses produce goods faster and more efficiently.

Answer 1

Such investments usually increase GDP by helping businesses produce goods faster and more efficiently.

Explanation: spending on capital goods (machines, equipment, factories) counts as investment in GDP and raises an economy’s productive capacity, enabling higher output over time. This is distinct from investments in human capital (skills/education) or effects on prices/profits.