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Investing contributes to economic growth in which of the following ways?(1 point)

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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 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.
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.
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.

1 answer

Investing contributes to economic growth primarily in the following ways:

  1. 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 option highlights how investments can directly support firms in acquiring the necessary resources for production and expansion, fostering economic growth.

  2. Investors earn returns on their investments, which increases their economic well-being. When investors earn returns, they have more capital to spend or reinvest, which can stimulate economic activity.

  3. Investors pool their funds into financial intermediaries that earn them larger returns. Investors can invest their money into mutual funds to cause economic growth. By pooling resources, investors can access a broader range of investment opportunities and services that can lead to greater capital efficiency and growth.

The first option is particularly significant in discussing how investments directly fund capital improvements, driving economic growth.