IB Economics Higher Level (HL) Practice Exam

The term for the addition of capital stock to the economy through expenditure by firms on capital is "Investment." This refers to the purchasing of physical goods that can be used in the production process, such as machinery, buildings, and equipment. Investment is crucial for economic growth as it increases the productive capacity of the economy, allowing firms to produce more goods and services. It contributes to the overall capital stock, which in turn can enhance productivity and lead to higher levels of output and income.

The other options represent different economic concepts. Consumption refers to the use of goods and services by households and is focused on the immediate use rather than the addition of capital. Saving pertains to the portion of income not spent on consumption, which can be directed towards investment but is distinct from the active process of purchasing capital stock. Production involves the actual creation of goods and services in the economy but does not specifically denote the financial commitment towards acquiring new capital. Thus, Investment is the correct term for spending by firms on capital goods in the context of adding to the economy's capital stock.