Assume that each $1 billion in investment in capital goods generates 0.3 percentage point of the average

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Assume that each $1 billion in investment in capital goods generates 0.3 percentage point of the average percentage rate of growth of per capita real GDP, given the nation's labor resources. Firms have been investing exactly $6 billion in capital goods each year, so the annual average rate of growth of per capita real GDP has been 1.8 percent. Now a government that fails to consistently adhere to the rule of law has come to power, and firms must pay $100 million in bribes to gain official approval for every $1 billion in investment in capital goods. In response, companies cut back their total investment spending to $4 billion per year. If other things are equal and companies maintain this rate of investment, what will be the nation's new average annual rate of growth of per capita real GDP?
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Economics Today

ISBN: 978-0132554619

16th edition

Authors: Roger LeRoy Miller

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