A developing country has determined that each additional $1 billion of investment in capital goods adds 0.01 percentage point to its long-run average annual rate of growth of per capita real GDP.
a. Domestic entrepreneurs recently began to seek official approval to open a range of businesses employing capital resources valued at $20 billion. If the entrepreneurs undertake these investments, by what fraction of a percentage point will the nation's long-run average annual rate of growth of per capita real GDP increase, other things being equal?
b. After weeks of effort trying to complete the first of 15 stages of bureaucratic red tape necessary to obtain authorization to start their businesses, a number of entrepreneurs decide to drop their investment plans completely, and the amount of official investment that actually takes place turns out to be $10 billion. Other things being equal, by what fraction of a percentage point will this decision reduce the nation's long-run average annual rate of growth of per capita real GDP from what it would have been if investment had been $20 billion?