Answer to Question #94458 in Macroeconomics for Nomthandazo

Question

which one of the following is not a source of economic growth
(1) capital widening
(2) imports
(3) government spending
(4) natural resources

Answer 1

(3) government spending

The basis sources of growth in the economy are increase in capital, human resources, natural resources, technological change and innovation, and efficiency. In some cases, imports also contribute to economic growth, especially if the imported items are needed for production and manufacturing in the country.

Government spending is not a source of economic growth because, when government spends, savings in the economy are reduced leading to an increase in interest rates. This in turn may lead to less investments in areas like home building, facilities, and infrastructure that is used to contribute to the output of the economy. Therefore, government spending is does not contribute to the growth of the economy.