Which of the following best describes the relationship between investment and physical capital?

The relationship between investment and physical capital is fundamentally tied to the concept of productivity. Increased investment in physical capital, such as machinery, buildings, and technology, enhances the capacity of an economy to produce goods and services. When more resources are allocated to acquiring or upgrading physical capital, businesses can operate more efficiently, increase output, and often improve the quality of the products they deliver.

This investment leads to a higher level of productivity because it enables firms to utilize advanced tools and technologies, which can streamline processes and reduce production costs over time. As physical capital becomes more sophisticated, it allows for innovation and expansion in production capabilities, ultimately contributing to economic growth.

Therefore, the statement that increased investment in physical capital boosts overall productivity aligns with the fundamental principles of economics, demonstrating how enhancements in capital resources directly influence an economy's ability to generate wealth and improve living standards.