If a country’s net investment is positive, ceteris paribus,
a. the country’s prospects for economic growth are enhanced.
b. the country’s GDP will decrease.
c. the country’s exports and imports will cancel each other out.
The correct answer and explanation is:
Correct Answer: a. the country’s prospects for economic growth are enhanced.
Explanation (300 words):
When a country’s net investment is positive, it means that gross investment exceeds depreciation. In other words, more new capital is being created than is being worn out. Capital includes items like machinery, buildings, infrastructure, and technology. A positive net investment suggests that the economy is expanding its productive capacity, which is a critical factor for long-term economic growth.
Economic growth refers to the increase in a country’s production of goods and services over time, typically measured by GDP (Gross Domestic Product). For GDP to grow sustainably, a country must increase the amount and quality of capital available to workers. When businesses invest in new equipment or technology, productivity improves—each worker can produce more output in the same amount of time. This efficiency leads to higher output, higher income, and improved living standards over time.
By contrast, if net investment were zero or negative, it would indicate that the capital stock is stagnating or shrinking, which can lead to lower productivity and a slowdown in economic growth.
Option b is incorrect because a positive net investment generally boosts GDP, not reduces it.
Option c is unrelated; exports and imports are part of a country’s current account, not directly linked to the investment (capital) account. Trade balance issues involve different economic factors such as currency exchange rates, trade policies, and consumer demand for foreign vs. domestic goods.
In summary, a positive net investment reflects a healthy, forward-looking economy that is reinvesting in itself. Ceteris paribus (all else held constant), this enhances the country’s prospects for economic growth, making option a the best and most accurate answer.