18. [5 pts.] Why did Adam Smith believe that high saving rates can drive economic growth? How does
saving promote growth through the factors of production?
19. [5 pts.] What does the following figure show? Is this piece of empirical evidence in favor of or against
Smith's theory on saving mentioned in the previous question? Explain.
Income per
person in 2014
(logarithmic scale)
Correlation = 0.71
100,000
Norway
Singapore
South Korea
Bermuda
United Kingdom
Maldives
Spain
Croatia
Anguilla
10,000
Egypt
El Salvador
Guatemala Philippines
China
Nicaragua
Syria
Cameroon
Zambia
Nepal
Tajikistan
Guinea-Bissau
Zimbabwe
Hungary
1,000
Burundi
Niger
Central African Republic
Mankiw, Macroeconomics, 10e, © 2019 Worth Publishers
0
5
10
Effective investment rate
(average 1995-2014)