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Devoting all current resources to consumption with no provision for saving and investment would most likely cause an economy's:
APrice mechanism to stop functioning entirely
BPresent consumption to fall sharply at once
CFuture production capacity to stagnate or decline
DResources to instantly become unlimited
Answer & Solution
Correct answer: C. Future production capacity to stagnate or decline
1. Saving and investment build future productive capacity.
2. With no provision for the future, capacity cannot grow.
3. Standards of living would stay stagnant and may eventually fall.
4. Present consumption actually rises rather than falls, and the claims about the price mechanism halting or resources turning unlimited have no basis in the text.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 1 Unit II "Basic Problems of an Economy and Role of Price Mechanism", p.1_
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