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How does the chapter say population growth running faster than economic growth tends to affect the economy?
AIt raises savings, boosting investment and demand
BIt has no effect on savings or output
CIt lowers savings, reducing investment and demand
DIt directly raises export earnings sharply
Answer & Solution
Correct answer: C. It lowers savings, reducing investment and demand
1. The chapter lists population growth among external causes.
2. If population grows faster than economic growth, there are lesser savings in the economy.
3. Fewer savings reduce investment in the economy.
4. Lower investment then lowers income and employment.
5. With lower income and employment, effective demand also falls.
6. The net result is a slowdown, so the correct choice is that it lowers savings and demand.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 5 "Business Cycles", p.9_
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