Growth II-S_I

Growth II-S_I - PRINCIPLES OF MACROECONOMICS...

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PRINCIPLES OF MACROECONOMICS Savings/Investments
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2 The Role of Saving • We can boost productivity by increasing K , which requires investment. • Since resources scarce, producing more capital requires producing fewer consumption goods. • Reducing consumption = increasing saving. This extra saving funds the production of investment goods. • Hence, a tradeoff between current and future consumption. Govt can offer incentives.
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3 Investment from Abroad To raise K / L , the government can also encourage foreign direct investment : a capital investment ( e.g ., factory) that is owned & operated by a foreign entity foreign portfolio investment : a capital investment financed with foreign money but operated by domestic residents
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• Especially beneficial in poor countries • Poor countries learn state-of-the-art technologies developed in other countries. Investment from Abroad
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Growth II-S_I - PRINCIPLES OF MACROECONOMICS...

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