Question 5

a) Let's assume that the total investment (% of GDP) and saving rates are the same for two hypothetical countries in Asia. Aruba had a 4% growth rate of average annual income per capita and Smalland had a 1% growth rate. Based on the economic concept/s you have learned, explain what would have caused the growth rates to be different? Diagram/s are required.(5 marks)

b) Due to high levels of inflation, the Central Bank in Country A decides to sell government bonds. Using the Phillips curve framework, explain and analyse how this will impact unemployment in the short run and long run. Diagram/s are required. (5 marks)