Answer: larger when the country's existing physical capital stock is small.

## Explanation **B is correct** - Investment spending has a larger impact on GDP growth when the existing physical capital stock is small due to the **concept of diminishing marginal returns to capital**. **Key economic principles:** 1. **Diminishing marginal returns**: Each additional unit of capital contributes less to output than the previous unit 2. **Catch-up effect**: Countries with smaller capital stocks can achieve higher growth rates from the same investment 3. **Productivity gains**: In capital-scarce economies, new investment often represents significant technological upgrades **Why this matters:** - In developing countries with small capital stocks, investment can lead to rapid productivity improvements - In developed countries with large capital stocks, additional investment faces diminishing returns - This explains why developing economies often grow faster than developed ones with similar investment rates **Example**: Adding one tractor to a farm that previously used only manual labor will have a much larger impact than adding one more tractor to a farm that already has 50 tractors.

Author: LeetQuiz Editorial Team