Social Studies Praxis Practice Test

An increase in which of the following is most likely to lead to long-run economic growth?

1. A. Productivity

2. B. Personal taxes

3. C. Consumer spending

4. D. Interest rates

The correct answer is: A. Productivity

Productivity is a key driver of long-run economic growth because it refers to the efficiency with which goods and services are produced. When productivity increases, it means that more output can be generated from the same amount of input, leading to higher total production in the economy. This often results in higher incomes for workers and greater profits for businesses, which in turn can lead to increased investment and further economic expansion. Higher productivity can be achieved through advancements in technology, improved skills and training for the workforce, better management practices, and infrastructure improvements. As productivity grows, the overall capacity of the economy to produce goods and services increases, enabling sustained economic growth over the long term. In contrast, personal taxes, consumer spending, and interest rates typically affect short-term economic conditions. For instance, while consumer spending can stimulate demand in the economy, it does not directly enhance the capacity or efficiency of production itself. Similarly, changes in personal taxes can influence disposable income and spending behavior but do not inherently improve productivity. Adjustments in interest rates impact borrowing costs and can influence short-term investment decisions, but they do not directly correlate to the productivity gains that facilitate long-term growth.