Question

What happened as a result of businesses expanding?

A)the national debt would decrease
B) the economy would grow
C) personal debt would rise
D) the job market would flatten

Answer 1

B. the economy would grow ... if a business expanded it would create more jobs ... more jobs means less unemployment.... less unemployment means more spending ... more spending means the economy grows

Answer 2

The correct answer is B.

The expansion of businesses increases the aggregate demand levels.

If a firms increases its capacity, it needs to hire more employees to generate a larger output. This entails a reduction in the unemployment levels in the economy and more people that start to earn an income. Each new employee will spent the mentioned income in consumption, investment, net exports, etc., increasing the aggregate demand (traditionally measured by the GDP figure)

In turn, increased consumption levels will lead to the expansion of the businesses that manufacture the consumed products, to more hiring, less unemployment and again a larger aggregate demand. There will be a multiplicative positive effect on the aggregate demand.