Chapter 2, Problem 3MCQ

To determine

The question requires us to identify the economic incident which increases the productive capacity of an economy in a long-term.

Explanation of Solution

An economic expansion is the recovery phase after a slowdown. It lasts until the next slowdown in the economy which means it is not consistent in the long run.

A recession and a depression are the different phases of economic slowdown. Depression is the wider version of economic recession. Both are negative growth phases representing a slowdown in the production capacity in the market.

Economic growth represents a higher level of production of goods and services in the market which in turn raises the national income (GDP). Economic growth is a quantitative aspect it doesn’t say anything about the quality of an economy, but it provides a long-term increase in the production capacity of goods and services in an economy. 

So, the economic growth will provide a long term increase in the production capacity of an economy.