The diagram below shows alternate paths for two hypothetical economies,each starting with GDP of $1 billion.Assume that Area 1 is equal to Area 2. FIGURE 25-1 Refer to Figure 25-1.Which of the following costs of economic growth are reflected in this diagram?

Question

The diagram below shows alternate paths for two hypothetical economies,each starting with GDP of $1 billion.Assume that Area 1 is equal to Area 2.  FIGURE 25-1 Refer to Figure 25-1.Which of the following costs of economic growth are reflected in this diagram?

Quizplus · Accepted Answer

The diagram shows the trade-off between current consumption (represented by the left path) and investment in capital goods (represented by the right path). The choice to invest in capital goods requires sacrificing current consumption, which is a cost of economic growth. The other options (lower real interest rate, environmental degradation, resource exhaustion, national saving) are not explicitly reflected in the diagram.

The Diagram Below Shows Alternate Paths for Two Hypothetical Economies,each