1.4. Let's think about two countries, Frugal and Smart.

In Frugal, people devote 50% of GDP to making new investment goods, so 'Y = 0.5, and their production function is Y =VIC In Smart, people devote 25% of GDP to making new investment goods, so "{ = 0.25 and their production function is Y = 2 VK. Both countries start off with K= 100.

a. What is the amount of investment in each country this year?

b. What is the amount of consumption (GDP Investment, or Y- I) in each country this year?

c. Where would you rather be a citizen: Frugal or Smart?