Suppose an LDC is producing on its production possibilities frontier such that it produces a subsistence level of consumption goods and enough capital goods just to replace the existing capital that depreciates. Foreign investment can lead to economic growth for this LDC in which of the following ways?
A. The LDC uses the investment to control inflation.
B. The mere presence of more money in the economy will lead to economic growth.
C. The LDC invests in consumption goods to move beyond the subsistence level this year.
D. The LDC invests in additional capital such that the rate of capital formation exceeds the value of capital depreciated.
Answer: D
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