Question

Households in China save 40 percent of their annual incomes each year, whereas U.S. households save less than 5 percent. At the same time, production possibilities are growing at roughly 9 percent per year in China but only about 3.5 percent in the United States. Use the graphical analysis of "present goods" versus "future goods" to explain the difference between China's growth rate and the U.S. growth rate. Production Possibilities (China) Production Possibilities (United States) 100 100 … 0ppc 80 80 ppc 70-4 PPC 0 30ト 10 F 10 10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100

Answer 1

From the two production possibility diagram of United States and China we observe that when US spends 10% on future goods , it spends 70% on present goods and when it spends more on future goods ie about 45% , it spends less on present goods than before ie 55%on present goods.Here US future growth rate will be less since it spends less on future goods .China spends 25%on future goods ,it spends 30%on present goods and when it increases its future goods,ie spends 35%on future goods ,it spends  15%on present goods .China produces fewer present goods and more  future goods As a result China's future PPC will  shift out faster than US.So China's future growth rate will be more