Answer :
Final answer:
Increases in capital significantly enhance productivity by allowing workers to produce more efficiently with better tools and technologies. This ultimately leads to higher wages and improved living standards, benefiting the economy as a whole. Therefore, capital increases are vital for economic growth.
Explanation:
Importance of Capital Increases for Productivity Growth
Increases in capital are essential for productivity growth in an economy for several reasons. Increases in the quantity and quality of capital allow workers to be more productive. This occurs because capital, which includes tools, machines, and facilities, directly contributes to the production process, enabling workers to produce more output efficiently.
When firms invest in better and more capital, this generally leads to:
- The marginal product of labor increasing, meaning each worker can produce more due to enhanced tools and technologies.
- An overall increase in total output, which tends to raise wages and improve living standards.
- Ultimately, the economy benefits from a boost in production capacity, leading to economic growth.
Thus, the correct answer to the question about the significance of capital in productivity is: increases in the quantity and quality of capital make workers more productive.
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