How does investment as a share of GDP in countries with more economic freedom compare with economies that are less free? How does the productivity of investment in the freer economies compare with its productivity in the less free economies? How will this influence differences in growth rates and income levels? Explain
Both investment as a share of GDP and the productivity of that investment are higher in countries with more economic freedom. This is highly important because investment and its productivity drive economic growth. Discovery of new improved products and production methods are also a driving force for economic growth. These discoveries generally lead to additional investment and improve productivity. Thus, improvements in technology and discovery of better ways of doing things are contributing factors to both the higher investment rates and greater investment productivity of the countries with more economic freedom.
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Refer to Figure 8A.1. The stock of capital no longer increases once the economy reaches point
A) a. B) b. C) c. D) e.
When the government runs a budget deficit, we would expect to see that
A) public saving is positive. B) private saving will fall. C) G + TR < T. D) investment will fall.