The GDP of any country can be divided into two kinds of goods: capital goods and consumption goods. The proportion of national output devoted to capital goods determines, to some extent, the nation’s growth rate.
a. Explain how capital accumulation leads to economic growth.
b. Briefly describe how a market economy determines how much investment will be undertaken each period.
c. Consumption versus investment is a more painful conflict to resolve for developing countries. Comment on that statement.
d. If you were the benevolent dictator of a developing country, what plans would you implement to increase per-capita GDP?