Question 3
Ans a) A developing country has a lower capital than the developed country, so, investment in capital stock in a developing country will add more to output than in developed country because of diminishing returns to capital which is as the quantity of capital employed increases, the additional production by each additional unit of capital falls.
b) Government saving = Taxes - Government Expenditure = 17600 - 30000 = -$12400
National Saving = Private saving + Government savings
=> Private saving = National Saving - Government savings = 20000 - (-12400) = $32400
Also, Private saving = GDP - Consumption
=> GDP = Private saving + consumption = 32400 + 80000 = $112400
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