Final answer:
The statement is true; increases in sales and profits do generate the necessary cash required for economic growth, as companies can reinvest these profits in expansion efforts. Such reinvestment is crucial for sustainable economic growth and can entice new firms to enter the market, further boosting the economy.
Step-by-step explanation:
An increase in sales and profits does generate the necessary cash required for economic growth, making the statement true. Firms can reinvest these profits to fuel expansion, such as upgrading factories, hiring more staff, or acquiring new technology, all of which can lead to even greater sales and profits. This process of reinvestment ensures that as long as a company remains profitable and its cash flow is sufficient to exceed the depreciation on its assets, continuous growth can be achieved.
Business investment is a crucial ingredient for sustained economic growth. During times of economic expansion, when consumer demand is high, companies are more likely to invest in new equipment and facilities with the expectation that these investments will bring about future profits.
Moreover, in a competitive market, profitable businesses serve as a beacon to induce expansion and attract entry from new companies. This expansion and new entry can increase the overall production capacity of an industry and contribute to economic growth.