What does an increase in production capacity of the economy refer to?

An increase in production capacity of the economy signifies the ability to produce more goods and services than before, which directly relates to the concept of economic growth. Economic growth occurs when there is an enhancement in the capacity to produce, often measured by the rise in the Gross Domestic Product (GDP). This can result from various factors, including advancements in technology, improvements in labor productivity, or increased investment in capital goods.

When production capacity increases, it implies that the economy is becoming more efficient and can support higher levels of output. This is essential for meeting the demands of a growing population and improving living standards. Therefore, an increase in production capacity is indicative of a healthy and expanding economy.

Understanding the terms related to economic performance can clarify why the other choices do not fit. Economic expansion generally refers to a phase where the economy is growing at a particular time but does not specifically denote the capacity increase; it is more about the overall activity levels. Economic recession and economic contraction both imply a decrease in economic activity and production, which clearly contrasts with an increase in capacity.