Principles of Economics- Mankiw (5th) 522

Principles of Economics- Mankiw (5th) 522 - 540 PA R T N I...

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540 PART NINE THE REAL ECONOMY IN THE LONG RUN This catch-up effect shows up in other aspects of life. When a school gives an end-of-year award to the “Most Improved” student, that student is usually one who began the year with relatively poor performance. Students who began the year not studying find improvement easier than students who always worked hard. Note that it is good to be “Most Improved,” given the starting point, but it is even better to be “Best Student.” Similarly, economic growth over the last several decades has been much more rapid in South Korea than in the United States, but GDP per person is still higher in the United States. INVESTMENT FROM ABROAD So far we have discussed how policies aimed at increasing a country’s saving rate can increase investment and, thereby, long-term economic growth. Yet saving by domestic residents is not the only way for a country to invest in new capital. The other way is investment by foreigners. Investment from abroad takes several forms. Ford Motor Company might
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