A detriment to economic growth:
A. is greater spending by corporations on training
B. greater spending by corporations on research and development
C. low saving rates
D. investment in capital
The correct answer and explanation is:
Correct Answer: C. low saving rates
Explanation (300 words):
Economic growth refers to the increase in a country’s output of goods and services over time, typically measured by Gross Domestic Product (GDP). Several factors contribute positively to economic growth, such as investment in capital, innovation, corporate spending on training, and research and development (R&D). These elements enhance productivity, efficiency, and the overall capacity of the economy.
On the other hand, low saving rates are detrimental to economic growth. When individuals and businesses save less, there is less capital available for banks and financial institutions to lend. This reduction in available funds hinders investment in productive assets such as factories, equipment, and infrastructure. Investment is crucial for economic expansion because it leads to job creation, increased production, and technological progress.
Moreover, savings provide the foundation for capital formation, which fuels long-term growth. A country with consistently low saving rates might struggle to finance investments domestically and may have to rely on foreign borrowing. This dependency can lead to external debt, trade imbalances, and vulnerability to global financial shocks.
In contrast, options A, B, and D are typically beneficial for growth:
- A. Greater spending by corporations on training boosts worker skills and productivity.
- B. Greater spending on R&D promotes innovation, which can lead to new industries and economic expansion.
- D. Investment in capital increases the productive capacity of the economy, contributing directly to growth.
Therefore, among the options, low saving rates (C) stand out as a clear impediment to sustained economic growth, especially in the long term. Addressing this issue often involves encouraging household savings through tax incentives, improving financial literacy, and fostering a stable economic environment.