Increased Thrift and Economic Growth

Economic texts generally suggest that an economy can attain a higher level of economic growth by reducing consumer goods production and employing the released resources to expand its output of capital goods. The argument is usually depicted graphically through the use of transformation curves as shown in Figure 1. If the economy chooses to produce at some relatively high consumption level such as point A on PP it can only attain the intermediate transformation curve P'P' in the succeeding time period, as shown on the graph.