5. Capital investment in less-developed countries The following graph shows the production possibilities curves (PPCs) of two hypothetical countries, Lanka and Hastinapur. Each economy produces only two sets of goods, consumer goods and capital goods. Although both countries had identical production capabilities in 2013, Hastinapur had a larger population and a greater need for consumer goods. In 2013, Hastinapur produced 70 million units of consumer goods and less than enough capital to replace the existing capital that was worn out in that year. Lanka produced only 60 million units of consumer goods and more than enough capital goods to replenish its depreciated capital. Assume that both countries produce efficient levels of output. On the following graph, use the black point ( X symbol) to show the combination of goods that were produced in Hastinapur in 2013. Dashed drop lines will automatically extend to both axes. Then use the purple point (diamond symbol) to show the combination of goods that were produced in Lanka in 2013. By producing capital goods over and above the amount necessary to replenish the stock of depreciated capital, an economy can increase its productivity. Similarly, the productivity of an economy decreases if it cannot produce enough capital to replenish its depreciated capital. In this case, will experience greater economic growth in the future. This graph shows the PPCs for the two countries in 2014. The green curve (PPC1) belongs to , and the orange curve (PPC2) belongs to In 2014, both Hastinapur and Lanka experience significant population growth. To satisfy the needs of their growing populations, Hastinapur must the graph the combination of goods that would be produced in Hastinapur in 2014. Then use the purple point (diamond symbol) to show the combination of goods that would be produced in Lanka in 2014. Hastinapur produces capital goods in 2014 than in 2013. This means savings and thus investment. The productivity of Hastinapur can be expected to be in 2015. This is an example of