Download Chapter 14 - Economic Growth and Rising Living Standards

Chapter 14
Economic Growth and
Rising Living
Standards
INTRODUCTION TO ECONOMICS 2e / LIEBERMAN & HALL
CHAPTER 14 / ECONOMIC GROWTH AND RISING LIVING STANDARDS
©2005, South-Western/Thomson Learning
Slides by John F. Hall
Animations by Anthony Zambelli
Economic Growth and Rising Living
Standards

Economist Thomas Malthus, writing in 1798, came to a
striking conclusion
 “Population, when unchecked, goes on doubling itself every twentyfive years, or increases in a geometrical ratio…The means of
subsistence…could not possibly be made to increase faster than in
an arithmetic ratio”




Prognosis was so pessimistic that it led Thomas Carlyle,
one of Malthus’s contemporaries, to label economics “the
dismal science”
History has proven Malthus wrong…at least in part
Economists today are optimistic about industrialized nations’
long-run material prospects
Achieving a higher rate of growth in long-run generally
requires some sacrifice in short-run
Lieberman & Hall; Introduction to Economics, 2005
2
The Importance of Growth

Why should we be concerned about economic growth?
 When output grows faster than population, GDP per capita will rise
• When output grows more slowly than population, average standard of living will
fall


Measuring standard of living by GDP per capita may seem limiting
Still, many aspects of our quality of life are counted in GDP such as
 Food, housing, medical care, education, transportation services, and movies
and video games

Economic growth is especially important in countries with income levels
far below those of Europe, Japan, and United States
 Other than emigration, economic growth is their only hope

Growth is a high priority in prosperous nations, too
 When output per capita is growing, it’s at least possible for everyone to enjoy
an increase in material well-being without having to cut back
Lieberman & Hall; Introduction to Economics, 2005
3
The Importance of Growth

When output per capita stagnates, material gains become a fight over a
fixed pie
 The more purchasing power my neighbor has, the less is left for me



In 1950s and 1960s, economic growth in wealthier nations seemed to be
taking care of itself
All of that changed starting in 1970s
 Economic growth became a national and international preoccupation
Over most of postwar period, output in more prosperous industrialized
countries grew by 2 or 3% per year
 Beginning in mid-1970s, all of these nations saw their growth rates slip

In late 1990s and early 2000s, only United States and United Kingdom
returned to their previous high rates of growth
 Other industrialized countries continued to grow more slowly than their
historical averages

Seemingly small differences in growth rates matter a great deal
Lieberman & Hall; Introduction to Economics, 2005
4
What Makes Economies Grow?

Useful way to start thinking about long-run growth
 Look at what determines our potential GDP in any given period
• Real GDP depends on





Amount of output average worker can produce in an hour
Number of hours average worker spends at the job
Fraction of population that is working
Size of population
Amount of output the average worker produces in an hour is
called labor productivity, or productivity
 Measured by taking total output (real GDP) of economy over a period
of time and dividing by total number of hours that everyone worked
during the period to produce that output
• Productivity = Output per hour = Total output ÷ Total hours worked
Lieberman & Hall; Introduction to Economics, 2005
5
What Makes Economies Grow?

Hours of the average worker can be found by
dividing total hours worked over a period by
total employment, number of people who
worked during the period
 Average Hours = Total hours worked ÷ Total
Employment
 Employment-population ratio (EPR) is found by
dividing total employment by population
• EPR = Total Employment ÷ Population
Lieberman & Hall; Introduction to Economics, 2005
6
What Makes Economies Grow?

Multiply these variables together
 Total output = Total output ÷ Total hours worked x Total
hours worked ÷ Total Employment x Total Employment ÷
Population x Population

Can write equation for total output as
 Total output = Productivity x Average Hours x EPR x
Population

Over long-run, when total output tracks closely with
potential output, this will give us an equation for
potential output
Lieberman & Hall; Introduction to Economics, 2005
7
What Makes Economies Grow?

Mathematics states that if two variables A and B are
multiplied together
 Percentage change in their product is approximately
equal to sum of their percentage changes
• % Δ (A x B) = % ΔA + % ΔB

Applying this rule to all four variables in right side of
our equation, as well as to total output on left
 Find that growth rate of output (% Δ Total Output) over
any period of time is
• % Δ Total Output = % Δ productivity + % Δ average hours + % Δ
EPR + % Δ Population
Lieberman & Hall; Introduction to Economics, 2005
8
Economic Growth and Living Standards

Ultimately, growth in potential output does not by
itself account for a rise in living standards
 What matters for a rising standard of living is real GDP
per capita

Total output = Productivity x Average Hours x EPR x Population

If we divide both sides by the population, we get
 Total output ÷ Population = Productivity x Average Hours x EPR
In terms of percentage growth rates

 % Δ Output per person = % Δ Productivity + % Δ Average hours + % Δ EPR

Notice that population drops out of the equation
 Only way to raise living standards is to increase productivity, average
hours, or labor force participation rate
Lieberman & Hall; Introduction to Economics, 2005
9
Economic Growth and Living Standards

If output per person grew due to growth in average
work hours, it’s not clear that living standard would
increase
 In most developed countries, average hours are slowly


decreasing, not increasing
So our last simplification is to ignore changes in average
hours in growth equation
• % Δ Output per person = % Δ productivity + % Δ EPR
To explain why U.S.—or any developed country—
has enjoyed continual rises in living standards over
long periods of time
 Must look to growth in productivity and growth in
employment-population ratio
Lieberman & Hall; Introduction to Economics, 2005
10
Growth in the Employment-Population
Ratio (EPR)




With a constant population, any policy that increases total
number of workers in economy will, by definition, increase
employment-population ratio
Over past 50 years, as labor supply curve has shifted
rightward, labor demand curve has shifted rightward as well
 Why?
Changes have increased amount of output a worker can
produce in any given period
 So firms have wanted to hire more of them at any wage
Over past century, increases in labor demand have
outpaced increases in labor supply
 So that, on balance, average wage has risen and employment has
increased
Lieberman & Hall; Introduction to Economics, 2005
11
Growth in the Employment-Population
Ratio (EPR)


Impact of these changes on total employment has
been dramatic
Currently, U.S. Bureau of Labor Statistics predicts
employment growth of 1% per year until 2010—
about the same as growth rate of population
 Is there anything we can do to make it grow over the next

several years, and thus increase our rate of economic
growth?
• Yes
But, keep in mind that these measures to increase
employment would also have costs
• Costs that Americans may or may not be willing to pay
Lieberman & Hall; Introduction to Economics, 2005
12
Figure 1: An Increase in Labor Supply
Real Hourly
Wage
At point A, labor supply and demand determine
an employment level of 100 million workers.
L1S
$15
12
A
LS2
B
LD
100 120
Lieberman & Hall; Introduction to Economics, 2005
An increase in labor supply
raises employment to 120
million (at point B) although
with a lower wage rate.
Millions of
Workers
13
Figure 2: An Increase in Labor
Demand
Real Hourly
Wage
LS
B
$17
15
If firms demand more labor,
employment will increase–
from 100 million to 120
million–while the wage rate
rises.
A
L1D
100 120
Lieberman & Hall; Introduction to Economics, 2005
LD2
Millions of Workers
14
Figure 3: The U.S. Labor Market Over
A Century
Real Hourly
Wage
L1S
W2
LS2
B
W1
A
LD2
L1D
L1
Lieberman & Hall; Introduction to Economics, 2005
L2
Millions of Workers
15
How To Increase Employment and the
EPR

One set of policies to increase employment focuses on changing labor
supply
 An often-proposed example of this type of policy is a decrease in income tax


rates
Tax cut would be just what was needed to get you to seek work
When we extend your reaction to population as a whole
 Can see that a cut in income tax rate can convince more people to seek jobs
at any given wage
• Shifting labor supply curve rightward
 Many American workers must pay combined federal, state, and local taxes
of more than 40¢ out of each additional dollar they earn

• This may be discouraging work effort in United States
In addition to tax rate changes, some economists have advocated
changes in government transfer programs to speed growth in
employment
 Redesigning these programs might stimulate growth in labor supply

This reasoning was an important motive behind the sweeping reforms in
U.S. welfare system in August 1996
Lieberman & Hall; Introduction to Economics, 2005
16
How To Increase Employment and the
EPR

A cut in tax rates increases reward for working
 While a cut in benefits to the needy increases hardship of not
working
 Either policy can cause a greater rightward shift in the economy’s
labor supply curve than would otherwise occur
 Which can raise the employment-population ratio and thereby raise
output per person

Government policies can also affect labor demand curve
 Government policies that help increase skills of the workforce or that
subsidize employment more directly can cause a greater rightward
shift in the labor demand curve than would otherwise occur,
 Which can raise the employment-population ratio and thereby raise
output per person
• Increasing employment and output
Lieberman & Hall; Introduction to Economics, 2005
17
How To Increase Employment and the
EPR

Efforts to create growth in the employmentpopulation ratio are controversial
 In recent decades, those who prefer an activist
government have favored policies to increase labor
demand
• Through government-sponsored training programs, more aid to
college students, employment subsidies to firms, etc.
 Those who prefer a more laissez-faire approach have
generally favored policies to increase labor supply by
decreasing government involvement
• Lower taxes or a less generous social safety net
Lieberman & Hall; Introduction to Economics, 2005
18
Growth in Productivity

We eliminated variables that could not explain
rising living standards over long-run
 Ruled out population growth

• Based on logic of equation for total output per person
Ruled out growth in average hours
• Because of upper limit on this variable’s growth and high
opportunity cost paid to raise hours per worker when most of
labor force is already working full-time


 Ruled out increases in the employment-population ratio
Only one variable remains
 Productivity
Can we do anything to make productivity grow even
faster?
Lieberman & Hall; Introduction to Economics, 2005
19
Growth in the Capital Stock

One key to productivity growth is growth in nation’s capital
stock
 Amount of capital available for average worker
 With more capital a given number of workers can produce more
output than before


Since same number of workers are working same number of
hours, but producing more output than before, productivity
rises
Growth in capital stock will increase productivity as long as it
increases amount of capital per worker
 If capital stock grows faster than labor force then capital per worker
will rise
• Labor productivity will increase along with it
 But if capital stock grows more slowly than labor force, then capital
per worker will fall
• Labor productivity will fall as well
Lieberman & Hall; Introduction to Economics, 2005
20
Investment and the Capital Stock

An increase in capital stock plays a central role in
economists’ thinking about growth
 Contributes to a rise in labor productivity and helps to
raise living standards

A stock variable measures a quantity at a moment
in time
 Capital stock is a measure of total plant and equipment in



economy at any moment
Planned investment is a flow variable
• Measures a process that takes place over a period of time
As long as investment is greater than depreciation, total
stock of capital will rise
The greater the flow of investment, the faster will be the
rise in capital stock
Lieberman & Hall; Introduction to Economics, 2005
21
The Loanable Funds Market



The loanable funds market is where business firms obtain funds for
investment
Where do the funds that business firms demand come from?
 Largely from household saving
Our picture of the loanable funds market would be very simple if this
were all there was to it
 But there is one more sector involved in this market:

• The government
The government acts as a demander of funds when it runs a budget
deficit
 By law, it has no choice
• It must borrow the money (demand loanable funds) by issuing U.S. government
bonds

There is just one more piece of the puzzle to discuss before we analyze
the loanable funds market more formally
 Demanders of funds pay interest to suppliers of funds
Lieberman & Hall; Introduction to Economics, 2005
22
The Supply of Funds Curve

The quantity of funds supplied to the
loanable funds market depends positively on
the interest rate
 This is why the saving, or supply of funds, curve
slopes upward

Other things can affect saving besides the
interest rate
 In drawing the supply of funds curve, we hold
each of these variables constant
Lieberman & Hall; Introduction to Economics, 2005
23
Figure 4: Supply of Household
Loanable Funds
Interest Rate
As the interest rate rises, saving
or the quantity of loanable funds
supplied increases.
B
5%
3%
Saving (S) or Supply of Funds
A
1.5 1.75
Lieberman & Hall; Introduction to Economics, 2005
Trillions of Dollars
per Year
24
The Demand For Funds Curve



Like saving, investment also depends on the interest rate
When the interest rate falls, investment spending and the
business borrowing needed to finance it rise
 The investment demand curve slopes downward
What about the government’s demand for funds?
 Will it, too, be influenced by the interest rate?
 The government sector’s deficit and, therefore, its demand for funds
are independent of the interest rate

As the interest rate decreases, the quantity of funds
demanded by business firms increases, while the quantity
demanded by the government remains unchanged
 Therefore, the total quantity of funds demanded rises
Lieberman & Hall; Introduction to Economics, 2005
25
Figure 5: Business Demand for
Loanable Funds
As the interest rate falls, business
firms demand more loanable
funds for investment projects.
Interest
Rate
5%
A
B
3%
Planned Investment
(IP) or Business
Demand for Funds
1.0
Lieberman & Hall; Introduction to Economics, 2005
1.5
Trillions of Dollars
per Year
26
Figure 6: The Demand for Funds
Summing business demand
for loanable funds at each
interest rate . . .
Interest
Rate
5%
Business Demand
B
for Funds (IP)
3%
1.0
. . . and the government's demand for
loanable funds . . .
Government Demand
for Funds (G – T)
B
gives us the economy's
total demand for loanable
funds at each interest rate.
Total Demand for Funds
[IP + (G – T)]
B
A
A
A
1.5
0.75
1.75 2.25
Trillions of Dollars per Year
Lieberman & Hall; Introduction to Economics, 2005
Trillions of Dollars per Year
Trillions of Dollars per Year
27
Equilibrium In The Loanable Funds
Market

In the loanable funds market—like other
markets—we can expect the price to adjust
until quantity demanded and quantity
supplied are equal
 In this case, the price of funds—the interest
rate—will rise or fall until the quantities of
loanable funds supplied by households and the
quantity demanded by firms and the government
are equal
Lieberman & Hall; Introduction to Economics, 2005
28
Figure 7: Loanable Funds Market
Equilibrium
Total Supply of
Funds (S)
Interest Rate
5%
E
Total Demand
for Funds
P
[I + (G – T)]
1.75
Lieberman & Hall; Introduction to Economics, 2005
Trillions of Dollars
29
Targeting Businesses: Increasing the
Incentive to Invest



One kind of policy to increase investment targets the
business sector itself
 With goal of increasing planned investment spending
Corporate profits tax
 Tax on profits earned by corporations
Investment tax credit
 A reduction in taxes for firms that invest in certain favored types of
capital

Reducing business taxes or providing specific investment
incentives can shift the investment curve rightward
 Speeding growth in physical capital
 Increasing growth rate of living standards
Lieberman & Hall; Introduction to Economics, 2005
30
Figure 8: An Increase In Investment
Spending
Supply of Funds (Saving)
Interest Rate
B
5%
A
3%
C
New Demand
for Funds
Original Demand
for Funds
1.5 1.75
Lieberman & Hall; Introduction to Economics, 2005
2.25
Funds ($ Trillions)
31
Targeting Households: Increasing the
Incentive to Save

While firms purchase new capital, it is largely households that supply
firms with funds, via personal saving
 An increase in investment spending can originate in household sector,
through an increase in desire to save

If households decide to save more of their incomes at any given interest
rate
 Supply of funds curve will shift rightward

What might cause households to increase their saving?





Greater uncertainty about economic future
Increase in life expectancy
Anticipation of an earlier retirement
Change in tastes toward big-ticket items
Change in attitude about saving
• Any of these changes—if they occurred in many households simultaneously—
would shift saving curve to the right

But government policy can increase household saving as well
 One often-proposed idea is to decrease capital gains tax
Lieberman & Hall; Introduction to Economics, 2005
32
Targeting Households: Increasing the
Incentive to Save



Another frequently proposed measure is to switch from
current U.S. income tax
 Taxes all income whether it is spent or saved
To a consumption tax
• Would tax only the income that households spend
Another proposal to increase household saving is to
restructure U.S. Social Security system
 Provides support for retired workers who have contributed funds to
system during their working years

Government can alter tax and transfer system to increase
incentives for saving
 If successful, these policies would
• Make more funds available for investment
• Speed growth in capital stock
• Speed rise in living standards
Lieberman & Hall; Introduction to Economics, 2005
33
Figure 9: An Increase In Savings
Interest Rate
5%
Original
Supply of
Funds
B
New Supply
of Funds
F
C
3%
Investment
Spending
1.75
Lieberman & Hall; Introduction to Economics, 2005
2.25 2.5
Funds ($ Trillions)
34
Figure 10: Deficit Reduction and
Investment Spending
Supply of Funds (Saving)
Interest Rate
5%
E
A
B
3%
Investment
Spending
1.0
Lieberman & Hall; Introduction to Economics, 2005
1.5 1.75
Investment
Spending + Deficit
Funds ($ Trillions)
35
Shrinking the Government’s Budget


A final pro-investment measure is directed at
government sector itself
Link between government budget, interest rate, and
investment spending is major reason why U.S.
government, and governments around the world,
try to reduce and, if possible, eliminate budget
deficits
 Shrinking deficit or rising surplus tends to reduce interest
rates and increase investment
• Speeding growth in capital stock

In 1990s, Congress set strict limits on growth of
government spending
 Budget deficit began shrinking
Lieberman & Hall; Introduction to Economics, 2005
36
Shrinking the Government’s Budget

When George W. Bush took office in 2001, direction of
growth policy shifted away from preserving budget
surpluses and toward lower tax rates
 A second tax cut in 2003—amounting to $350 billion over 10 years—
increased current and project deficits further

Tax cuts included some elements to increase investment
spending
 Such as a lower tax rate for capital gains and tax incentives for
investment by small businesses

But the tax cuts
 By raising current and future budget deficits would increase interest
rates
• Worked in opposition to the growth benefits of tax cut
Lieberman & Hall; Introduction to Economics, 2005
37
An Important Proviso About the
Government Budget



A reduction in the budget deficit if it stimulates private
investment—is not necessarily a pro-growth measure
 Depends on how the budget changes
 The answers can make a big difference to the impact on growth
Government investment in new capital and in maintenance
of existing capital makes an important contribution to
economic growth
Impact of deficit reduction on economic growth depends on
which government programs are cut
 Shrinking deficit by cutting government investment will not stimulate
growth as much as would cutting other types of government
spending
Lieberman & Hall; Introduction to Economics, 2005
38
Human Capital and Economic Growth





Human capital
 Skills and knowledge possessed by workers
An increase in human capital works like an increase in
physical capital to raise productivity and increase average
the standard of living
Human capital investments are made by business firms, by
government, and by households
Human capital, unlike physical capital, cannot be separated
from the person who provides it
Many pro-growth policies discussed earlier are also effective
in promoting investment in human capital
 Policies that increase employment or increase investment in physical
capital
Lieberman & Hall; Introduction to Economics, 2005
39
Technological Change

Another source of growth is technological change
 Invention or discovery of new inputs, new outputs, or new methods
of production

New technology affects economy in much the same way as
does an increase in capital per worker
 It raises labor productivity
• Since it enables any given number of workers to produce more output


In many cases, new technology requires acquisition of
physical and human capital before it can be used
In some instances, however, a new technology can be used
without any additional equipment or training
 As when a factory manager discovers a more efficient way to
organize workers on the factory floor

The faster the rate of technological change
 The greater the growth rate of productivity, and
 The faster the rise in living standards
Lieberman & Hall; Introduction to Economics, 2005
40
Technological Change

Might seem that technological change is one of those things that just
happens
 But pace of technological change is not as haphazard as it seems

Rate of technological change in economy depends largely on firms’ total
spending on R&D
 Policies that increase R&D spending will increase pace of technological
change

What can government do to increase spending on R&D?
 Can increase its own direct support for R&D by carrying out more research

in its own laboratories or increasing funding for universities and tax
incentives to private research labs
Can enhance patent protection
• Increases rewards for those who create new technology by giving them exclusive
•
rights to use it or sell it
Encourages developers to spend more on R&D
 R&D spending is in many ways just like other types of investment spending
• Funds are drawn from the loanable funds market, and R&D programs require
firms to buy something now (laboratories, the services of research scientists,
materials to build prototypes) for uncertain prospect of future profits
Lieberman & Hall; Introduction to Economics, 2005
41
The Cost of Economic Growth


Why don’t all nations pursue these policies and push their
rates of economic growth to the maximum?
Promoting economic growth involves unavoidable trade offs
 Requires some groups, or nation as a whole, to give up something
else that is valued
 In order to decide how fast we want our economy to grow we must
consider growth’s costs as well as benefits

One of the most important things you will learn in your
introductory economics course is that there are no costless
solutions to society’s problems
 What are the costs of growth?
Lieberman & Hall; Introduction to Economics, 2005
42
Budgetary Costs




Cutting income tax rate
Cutting taxes on capital gains or corporate profits
Cutting taxes on saving
Implementing any of these tax cuts would force the
government to choose among three unpleasant
alternatives
 Increase some other tax to regain lost revenue, cut
government spending, or permit budget deficit to rise

While properly targeted tax cuts can increase rate
of economic growth
 Will force us to either redistribute tax burden or cut
government programs
Lieberman & Hall; Introduction to Economics, 2005
43
Consumption Costs



Any pro-growth policy that works by increasing
investment—private or government, in physical
capital, human capital, or R&D—requires a sacrifice
of current consumption spending
Role of this trade-off in economic growth can be
clearly seen with production possibilities frontier
(PPF)
Greater investment in physical capital, human
capital, or R&D will lead to faster economic growth
and higher living standards in the future
 But we will have fewer consumer goods to enjoy in the
present
Lieberman & Hall; Introduction to Economics, 2005
44
Figure 11: Consumption, Investment,
and Economic Growth
Production of
Capital Goods
K
D
E
B
A
C
Lieberman & Hall; Introduction to Economics, 2005
Production of
Consumption Goods
45
Opportunity Costs of Workers’ Time

Living standards will also rise if a greater fraction of
population works or if those who already have jobs
begin working longer hours
 But this increase in living standards comes at a cost
• Decrease in time spent in nonmarket activities

Thus, when economic growth comes about from
increases in the employment-population ratio (or in
average hours), we face a trade-off
 Can enjoy higher incomes and more goods and services
 Will have less time to do things other than work in the
market
Lieberman & Hall; Introduction to Economics, 2005
46
Sacrifice of Other Social Goals

Rapid economic growth is an important social goal, but not
the only goal
 Some policies that quicken the pace of growth require us to sacrifice
other goals that we care about


But, just as government policies to stimulate investment
require us to sacrifice other goals, so, too, can pursuit of
other goals impede investment spending and economic
growth
We can achieve greater worker safety, a cleaner
environment, and other social goals, but we may have to
sacrifice some economic growth along the way
 Alternatively, we can achieve greater economic growth, but we will
have to compromise on other things we care about
Lieberman & Hall; Introduction to Economics, 2005
47
Using the Theory: Economic Growth in
the Less-Developed Countries


In most countries, Malthus’s dire predictions have not come
true
 Less-developed countries (LDCs)
How does a nation go about increasing its capital stock?
 Shifting resources away from consumer-goods production toward
capital-goods production



Some countries that were once LDCs have applied the
formula very effectively
But other LDCs have had great difficulty raising living
standards
Much of the explanation for low growth rates of many LDCs
lies with three characteristics that they share
 Very low current output per capita
 High population growth rates
 Poor infrastructure
Lieberman & Hall; Introduction to Economics, 2005
48
Using the Theory: Economic Growth in
the Less-Developed Countries

These characteristics interact to create a vicious circle of continuing
poverty
 Which we can understand with the help of the familiar PPF between capital
goods and consumption goods

In order to have rising capital per worker—an important source of growth
in productivity and living standards
 A nation’s stock of capital must not only grow, but grow faster than its
population

Poorest LDCs are too poor to take advantage of the trade-off between
consumption and capital production in order to increase their living
standards
 Since they cannot reduce consumption below current levels, they cannot
produce enough capital to keep up with their rising population

In recent history, countries have attempted several methods to break out
of this vicious circle of poverty
 During 1930s, dictator Joseph Stalin simply forced Soviet economy from a

point like H to one like J in Figure 12
Millions who complained too loudly, or who otherwise represented a political
threat, were rounded up and executed
Lieberman & Hall; Introduction to Economics, 2005
49
Using the Theory: Economic Growth in
the Less-Developed Countries

A less-brutal solution to problem of LDCs is to make wealthy bear more
of the burden of increasing growth
 These moves often backfire in long-run
• Since restrictions on personal and economic freedom are remembered long after
they are removed



Makes the public—especially foreigners—hesitant to invest in that country
A third alternative—and the one used increasingly since 1940s—is
foreign investment or foreign assistance
Variation on this strategy
 Foreign nations provide consumer goods so that poorer nation can shift its
own resources out of producing them (and into capital production) without
causing consumption levels to fall

Another alternative is slowing growth in population
 Has been an important (and successful) part of China’s growth strategy
• Although it has required severe restrictions on rights of individual families to have
children
Lieberman & Hall; Introduction to Economics, 2005
50
Figure 12: LDC Growth and Living
Standards
Production of
Capital Goods
K
per Period
J
H
N
R
S
C
Production of Consumption Goods per Period
Lieberman & Hall; Introduction to Economics, 2005
51
Figure 13: Growth Options for LDCs
(b)
(a)
Production
of Capital
Goods per
Period K
Production
of Capital
Goods per
Period K
F
N
H
N
T
N'
S C
Production of Consumption
Goods per Period
Lieberman & Hall; Introduction to Economics, 2005
S C
Production of Consumption
Goods per Period
52