Answer to Question #283751 in Macroeconomics for ABEX

Question

41. Consider two cultures X and Z. In culture X, parents live for their children and grandchildren where their current income is divided among current consumption, saving for retirement, and investment in the education of their children. In culture Z, children are born as assets for their parents so that the current generation expects to be taken care

of by the future generation. Output produced by the younger generation is divided into proceed and bequest for parents, and investment for future self-sufficiency.

(a) What is the direction of flow of resource of investment in the two cultures?

(b) What is the implication of the two cultures for growth?

Answer 1

A)In cultures X the flow of investment and resources is forward or upwards that is for children .

In culture z the flow of resources is downwards as children are viewed as assets.

Investment is also for future self-sufficiency.

B) in x there is lot of saving for future generation as well as consumption for current generation .There is normal growth in the economy

In z there is saving for the need for future self-sufficiency. Growth is somehow hindered as there is much saving rather than expenditure for investment to boost economic growth.