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.