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Principles of Economics- Mankiw (5th) 520

Principles of Economics- Mankiw (5th) 520 - 538 PA R T N I...

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538 PART NINE THE REAL ECONOMY IN THE LONG RUN The next chapter examines in more detail how the economy’s financial mar- kets coordinate saving and investment. It also examines how government policies influence the amount of saving and investment that takes place. At this point it is important to note that encouraging saving and investment is one way that a gov- ernment can encourage growth and, in the long run, raise the economy’s standard of living. To see the importance of investment for economic growth, consider Figure 24-1, which displays data on 15 countries. Panel (a) shows each country’s growth rate over a 31-year period. The countries are ordered by their growth rates, from most to least rapid. Panel (b) shows the percentage of GDP that each country devotes to investment. The correlation between growth and investment, although not perfect, is strong. Countries that devote a large share of GDP to investment, such as Singapore and Japan, tend to have high growth rates. Countries that
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