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CHAPTER 6: LONG-RUN ECONOMIC GROWTH
LEARNING OBJECTIVES
I. Goals of Chapter 6
A. Identify forces that determine the growth rate of an economy
1. Changes in productivity are key
2. Saving and investment decisions are also important
B. Examine policies governments may use to influence the rate of growth
II. Notes to Sixth Edition Users
A. New Application “Growth accounting: Alberta versus Saskatchewan” has
been added.
TEACHING NOTES
I. The Sources of Economic Growth (Sec. 6.1)
A. Production function Y = AF(K, N) (6.1)
1. Decompose into growth rate form
ΔY/Y = ΔA/A + aKΔK/K + aNΔN/N (6.2)
2. The terms aK and aN are the elasticities of output with respect to the
inputs (capital and labour)
3. Interpretation
a. A rise of 10% in A raises output by 10%
b. A rise of 10% in K raises output by aK times 10%
c. A rise of 10% in N raises output by aN times 10%
4. Both aK and aN are less than 1 due to diminishing marginal productivity
B. Growth accounting
1. Four steps in breaking output growth into its causes (productivity
growth, capital input growth, labour input growth) (Table 6.2)
a. Get data on ΔY/Y, ΔK/K and ΔN/N, adjusting for quality changes
b. Estimate aK and aN from historical data
c. Calculate the contributions of K and N as aKΔK/K and aNΔN/N,
respectively
d. Calculate productivity growth as the residual:
ΔA/A = ΔY/Y - aKΔK/K - aNΔN/N
Numerical Problems 1 and 2 are growth accounting exercises.
2. Application: Growth accounting and the East Asian “miracle”
a. The East Asian “tigers” (Hong Kong, Singapore, South Korea,
and Taiwan) have all grown over 7% per year for 25 years
b. Alwyn Young’s research found that their rapid growth resulted
from capital and labour growth, not productivity growth
c. The implication is that their rapid growth may stop soon, since
growth in inputs is hard to sustain permanently
3. Application: Growth accounting: Alberta versus Saskatchewan
4. Growth accounting and the productivity slowdown
a. Results for 1891–2009 (text Table 6.3)
(1) Highest growth rate between 1962–73 with productivity
growth 1.8%, labour growth 2.2%, and capital growth 1.3%.
Copyright © 2012, Pearson Canada Inc., Toronto, Ontario

Long-Run Economic Growth 95
(2)Pre-1956 growth was less, and post-1980 growth was less

(3)Productivity growth has declined
(a) 1926–1956: 2.7%
(b) 1962–1973: 1.8%
(c) 1974–1986: 0.6%
(d) 1987–2009: 1.3%
b. Productivity growth slowdown occurred in all major developed
countries
5. The Post-1973 Slowdown in Productivity Growth
a. Measurement problems: inadequate accounting for quality
improvements
b. Technological depletion and slow commercial adaptation:
Greenwood and Yorukoglu suggest that technological
innovation has temporarily dried up; also, companies may be
slow to adapt new technology
c. The oil price explanation: Huge increase in oil prices reduced
productivity of capital and labour, especially in basic industries
d. The beginning of a New Industrial Revolution
Policy Application
Paul Krugman, “The Myth of Asia’s Miracle,” Foreign Affairs, Nov/Dec 1994, pp. 62–78,
provides a readable summary of Alwyn Young’s work on growth accounting in Asia. He
also gives a thought-provoking analysis of how growth accounting in the 1950s would
have predicted the subsequent productivity slowdown in Russia despite the tremendous
fears in the US at that time of a USSR convergence with the United States.
Theoretical Application
Growth accounting provides the basis for the real business cycle (RBC) model of the
economy, which we will discuss in greater detail in Chapter 11 The RBC model takes
movements in total factor productivity to be the primary source of business cycle
fluctuations.

96 Chapter 6
Data Application
Michael Denny et al in “Productivity in Manufacturing industries, Canada, Japan, and
the U.S. 1953-86: Was the ‘productivity slowdown’ reversed?” Canadian Journal of
Economics, 1992 August pp. 548-603 argue that during the last twelve year period
measured, from 1973-85, productivity growth in the majority of Canadian manufacturing
industries was much lower than during the first twelve years, from 1961-75. They
suggest that the decline in Canadian manufacturing productivity growth may have been
concentrated in the period 1973-80, and there may have been a recovery after 1980.
II. Growth Dynamics: The Neoclassical Growth Model (Sec. 6.2)
A. Three basic questions about growth
1. What’s the relationship between the long-run standard of living and the
saving rate, population growth rate, and rate of technical progress?
2. How does economic growth change over time? Will it speed up, slow
down, or stabilize?
3. Are there economic forces that will allow poorer countries to catch up
to richer countries?
B. Setup of the model
1. Basic assumptions and variables
a. Population and work force grow at same rate n
b. Economy is closed and G = 0
c. Ct = Yt – It (6.3)
d. Rewrite everything in per-worker terms: yt = Yt/Nt; ct = Ct/Nt; kt =
Kt/Nt
e. kt is also called the capital–labour ratio
2. The production function
a. Yt = AtF(Kt,Nt) (6.4)
b. Assume no productivity growth for now (add it later)
c. Plot of per-worker production function—text Fig. 6.1
d. Same shape as aggregate production function
Numerical Problem 5, 6, and Analytical Problem 6 work with the per-worker production
function.
3. Steady states
a. Steady state: yt, ct, and kt, are constant over time
b. Gross investment must
(1) Replace worn out capital, dKt
(2) Expand so the capital stock grows as the economy grows,
nKt
c. yt = Atf(kt) (6.5)
d. From Eq. (6.3), Ct = Yt – It = Yt – (n + d)Kt (6.7)
e. In per-worker terms, in steady state c = Af(k) – (n + d)k (6.8)
f. Plot of c, Af(k), and (n + d)k (Fig. 6.1; identical to text Fig. 6.2)
g. Increasing k will increase c up to a point
(1) This is kG, in the figure
(2) For k beyond this point, c will decline
(3) But we assume henceforth that k is less than kG, so c
always rises as k rises

y, (n+d)k
(n+d)k
y=Af(k)
k
c
kG kmax k
Figure 6.1
4. Reaching the steady state

a. Suppose saving is proportional to current income: St = sYt (6.9),
where s is the saving rate which is between 0 and 1
b. Equating saving to investment gives sYt = (n + d)Kt (6.10)
c. Putting this in per-worker terms gives sAf(k) = (n + d)k (6.11)
d. Plot of sAf(k) and (n + d)k (Fig. 6.2; identical to text Fig, 6.4)
e. The only possible steady-state capital–labour ratio is k*
f. Output at that point is y* = Af(k*); consumption is c* = Af(k*) – (n
+ d) k*
g. If k begins at some level other than k*, it will move toward k*
(1) For k below k*, saving > the amount of investment
needed to keep k constant, so k rises

98 Chapter 6
y=Af(k)
sAf(k), (n+d)k, y
(n+d)k)
sAf(k)
k
k*
Figure 6.2
(2) For k above k*, saving < the amount of investment

needed to keep k constant, so k falls
h. To summarize, with no productivity growth, the economy
reaches a steady state, with constant capital–labour ratio,
output per worker, and consumption per worker
C. The fundamental determinants of long-run living standards
1. The saving rate
a. Higher saving rate means higher capital–labour ratio, higher
output per worker, and higher consumption per worker (shown
in text Fig. 6.5)
b. Should a policy goal be to raise the saving rate?
(1) Not necessarily, since the cost is lower consumption in the
short run
(2) There is a trade-off between present and future
consumption
2. Population growth
a. Higher population growth means a lower capital–labour ratio,
lower output per worker, and lower consumption per worker
(shown in text Fig. 6.6)
b. Should a policy goal be to reduce population growth?
(1) Doing so will raise consumption per worker
(2) But it will reduce total output and consumption, affecting a
nation’s ability to defend itself or influence world events
c. The Solow model also assumes that the proportion of the
population of working age is fixed
(1) But when population growth changes dramatically this may
not be true
(2) Changes in cohort sizes may cause problems for social
security systems and areas like health care
3. Productivity growth
a. The key factor in economic growth is productivity improvement

b. Productivity improvement raises output per worker for a given

level of the capital–labour ratio
c. In equilibrium, productivity improvement increases the capital–
labour ratio, output per worker, and consumption per worker
(1) Productivity improvement directly improves the amount that
can be produced at any capital–labour ratio
(2) The increase in output per worker increases the supply of
saving, causing the long-run capital–labour ratio to rise
d. Can consumption per worker grow indefinitely?
(1) The saving rate can’t rise forever (it peaks at 100%) and
the population growth rate can’t fall forever
(2) But productivity and innovation can always occur, so living
standards can rise continuously
e. Summary: The rate of productivity improvement is the dominant
factor determining how quickly living standards rise
Analytical Problems 1,2, 3, and 4 look at how changes in the fundamentals affect an
economy’s economic growth.
4. Application: Do economies converge?
a. Unconditional convergence: Poor countries eventually catch up
to rich countries
(1) This should occur if saving rates, population growth rates,
and production functions are the same worldwide
(2) Then, even though they start with different capital–labour
ratios, all countries should converge with the same capital–
labour ratio, output per worker, and consumption per
worker
(3) If there is international borrowing and lending, there is
more support for unconditional convergence
(a) Capital should flow from rich to poor countries, as it
will have a higher marginal product there
(b) So investment wouldn’t be limited by domestic saving
b. Conditional convergence: Living standards will converge in
countries with similar characteristics [s, n, d, Af(k)]
(1) Countries with different fundamental characteristics will not
converge
(2) So a poor country can catch up to a rich country if both
have the same saving rate, but not to a rich country with a
higher saving rate
c. No convergence: Poor countries don’t catch up over time; this is
inconsistent with the neoclassical growth model
d. What is the evidence?
(1) Little support for unconditional convergence
(2) Some support for conditional convergence after correcting
for differences in saving rates and population growth
(Mankiw, Romer, and Well, 1992)

100 Chapter 6
(3) Support for conditional convergence among states in the

United States (Barro and Sala-i-Martin, 1992)
Data Application
Looking at the performance of Canadian provinces, Serge Coulombe and Frank C. Lee
“Convergence Across Canadian Provinces, 1961 to 1991”, Canadian Journal of
Economics, November 1995, pp. 886-898, find evidence for conditional convergence
after 1961. Provinces that were initially poor seem to be catching up to initially richer
provinces.
(4) Since there’s little support for unconditional convergence,
international financial markets must be imperfect (clue to
limits on foreign investment by governments, tariff barriers,
and information costs)
Data Application
Lant Pritchett, “Divergence, Big Time,” Journal of Economic Perspectives, Summer
1997, pp. 3-17, argues that there is no evidence of unconditional convergence of poor
countries with rich countries. In fact, historical evidence shows a massive divergence in
per capita income across countries.
Analytical Problem 5 takes a look at convergence.

D. Endogenous growth theory—explaining the sources of productivity growth
1. Human capital
a. Knowledge, skills, and training of individuals
b. Richer countries invest more in human capital
c. Higher human capital increases output per worker
d. Empirical studies show a strong relationship between economic
growth and education or literacy
Theoretical Application
For a readable discussion of the Solow-Swan model and several simple endogenous
growth models, see Charles Jones, Introduction to Economic Growth, New York: W.W.
Norton, 1998. In addition to presenting current research on economic growth in an
accessible fashion, the text also presents and discusses relevant empirical evidence.
2. Technological innovation
a. Research and development programs: formal programs to
improve products
b. Learning by doing: innovations that arise in the process of
making and marketing a good or service
3. Policy lessons
a. Government policy to increase the capital–labour ratio (e.g., by
increasing the saving rate) can lead to a virtuous circle, raising
output per worker continuously
b. This occurs because the higher output raises living standards
and human capital, leading to even more productivity
improvements

A. Economic growth and the environment

a. Economic growth may be limited by available stocks of natural
resources or by the environment.
b. Does economic growth lead to deterioration in the environment?
Policy Application
For a provocative prescription for economic growth, see Chapter 1 in Robert Barro,
Determinants of Economic Growth: A Cross-Country Empirical Study, Cambridge: MIT
Press, 1997. He also discusses the relevant importance of democracy and inflation on
growth in Chapters 2 and 3.
III. Government Policies to Raise Long-Run Living Standards (Sec. 6.3)
A. Policies to affect the saving rate
1. If the private market is efficient, the government shouldn’t try to change
the saving rate
a. The private market’s saving rate represents its trade-off of
present for future consumption
b. But if tax laws or myopia cause an inefficiently low level of
saving, government policy to raise the saving rate may be
justified
2. How can saving be increased?
a. One way is to raise the real interest rate to encourage saving;
but the response of saving to changes in the real interest rate
seems to be small
b. Another way is to increase government saving
(1) The government could reduce the deficit or run a surplus
(2) But under Ricardian equivalence, tax increases to reduce
the deficit won’t affect national saving
B. Policies to raise the rate of productivity growth
1. Improving infrastructure
a. Infrastructure: highways, bridges, utilities, dams, airports
b. Empirical studies suggest a link between infrastructure and
productivity
c. Canadian infrastructure spending has declined in the last two
decades
d. Would increased infrastructure spending increase productivity?
(1) There might be reverse causation: Richer countries with
higher productivity spend more on infrastructure, rather
than vice versa
(2) Infrastructure investments by government may be
inefficient, since politics, not economic efficiency, is often
the main determinant
2. Building human capital
a. There’s a strong connection between productivity and human
capital
b. Government can encourage human capital formation through
educational policies, worker training and relocation programs,
and health programs
c. Another form of human capital is entrepreneurial skill

102 Chapter 6
d. Government could help by removing barriers, like red tape

3. Encouraging research and development
Government can encourage R and D through direct aid to research
Policy Application
Many issues relating to government policy and its effect on growth are discussed in a
special issue of the Journal of Monetary Economics, December 1993. The articles were
presented z a World Bank Conference on the research project, “How Do National
Policies Affect Long-Run Growth?”
4. Industrial policy
A growth strategy in which government uses taxes, subsidies, or
regulation to influence economic development
a. Some argue that government should promote high-tech industry
b. But others think the free market allocates resources well without
government interference
c. Why might government interference be desirable?
(1) Borrowing constraints on small firms or individuals may
prevent them from undertaking research and development
(2) Spillovers of one firm’s innovation may help other firms
(3) Prestige or military advantage may make it important that a
nation have a presence in an industry with few worldwide
firms
d. But the government may be bad at picking winning ideas to
fund; further, politics, not innovation, may determine what firms
get government funding
e. Empirical evidence: Governments frequently pick losing ideas to
fund, though sometimes they pick big winners
5. Market policy
Policy stipulating the extent to which government can restrict the free
operation of markets
a. Market policies include the choice of free versus regulated
markets and the choice of free trade versus protectionism
b. Why might government interference with the free operation of
markets be desirable?
(1) Unfettered operation of markets may result in a highly
concentrated production and hence, inefficiency
(2) Free operation of markets may produce outcomes that a
society may deem unattractive
(3) Efficient operation of markets involves the dislocation of
resources, including human resources, and societies
sometimes choose to interfere with the free operation of
markets by providing social insurance
(4) A system of free markets also produces an unequal
distribution of income by rewarding handsomely those
whose skills are valued highly in the marketplace
c. Advances in productivity are sometimes resisted because of the
perception that they must involve costs in terms of equity and
fairness
d. However, some economists argue that increases in efficiency
may actually require increases in social insurance

e. Free trade is a productivity-enhancing market policy because it

encourages industries to specialize in the production of goods
and services in which they have a comparative advantage and
enables firms to enjoy economies of scale in production
(1) Adjustment to free trade is neither instantaneous nor
costless
(2) Evidence suggests that Canada’s signing of free trade
agreements has increased productivity, though at the price
of short-run adjustment costs
ADDITIONAL ISSUES FOR CLASSROOM DISCUSSION

1. Is Growth Always Beneficial?
A major goal of most countries is to have sustained growth in the level of GDR Is this an
appropriate goal for all countries in all periods? What problems can growth bring?
Although growth normally leads to more jobs and a greater availability of goods and
services, growth can bring difficulties as well as gains. Rapid growth can cause
congestion and unhealthy living and working situations. The need for raw materials may
despoil pristine natural settings. In the lower mainland of British Columbia, the pressure
of economic and population growth has seriously reduced air quality and damaged
natural habitats for wildlife. Industrial production may pollute the air, water, and land. At
some point one must wonder if the price we pay for more goods and services is worth
what we give up in beauty and cleanliness.
Does growth benefit everyone? There is an implicit assumption that when the total
amount of goods and services available goes up, everyone will receive more. However,
sometimes the benefits of growth are very unequally distributed. Workers and business
owners may do better, but frequently the unemployed, the retired, and marginal workers
receive few benefits. Sometimes one region may gain while other stagnate, causing
regional conflict.
2. Noneconomic Factors in Growth
Economic models highlight growth that comes about because of changes in the inputs
of capital and labour or in productivity. Political and social changes may affect growth
and productivity as well. What noneconomic factors are important in growth?
Items such as attitudes toward work, the political climate, and the availability of
managerial talent and entrepreneurship are important determinants of the rate of
economic growth, but are difficult to quantify. Although there are many nonecomomic
factors, we shall confine ourselves to two: entrepreneurial spirit and political stability. In
most places where growth has been rapid, each of these has been available. Growth
usually requires people to break out of their old ways—to follow new methods or use
new materials. If growth came about only through increases in the amounts of land,
labour, and capital used, there would be severe limits on our ability to raise production
by more than population growth. GDP per capita would grow very slowly. Much of the
increase in productivity requires an entrepreneur to seize the opportunity for new
products or better production methods and make the necessary changes, in societies
that prize conformity, few people are willing to follow new ideas, so growth in output is
generally slow.
Political stability is almost an absolute requirement for economic advance. The breakup
of Yugoslavia and the ensuing war has brought production to a halt. It is difficult to
spend much time improving production when daily life requires one to scramble for food,
water, shelter, and fuel just to stay alive. Even when a shooting war does not erupt,

104 Chapter 6
governmental instability leads to limited or even negative growth. For businesses to be

successful they need consistent, even-handed policies. If permits are hard to get or tax
policies are not administered fairly, businesses often prefer to produce in other locations
where conditions are more favourable. Being an entrepreneur requires risk in the most
stable of political situations. An unstable or nonexistent government makes the risks too
high for most prospective business owners.
3. How Do Increases in Productivity Come About?
An important part of growth comes from increases in productivity. What causes growth
in productivity?
Some increases in productivity come from new equipment. For example, buying a new,
faster copy machine that collates and staples may allow the graphics department to
produce more in a given period of time with fewer workers. Fax machines reduce the
time necessary to deliver documents from one office to another.
Other increases in productivity come from eliminating unnecessary or duplicative steps
from a procedure. For example, Revenue Canada is beginning a system allowing for tax
returns to be filed electronically. While the electronic submission requires the use of
technology, the real saving is in the fact that the information need be entered only once.
When the filer fills out the return, the data are in a form that is automatically transmitted
to the computer. No second input of data by a human would be necessary. Such a
procedure also increases productivity by reducing the number of errors. Every time the
data must be entered, the chance of error increases.
Major enhancements of output result from reassessing, redesigning, and/or
reorganizing production. For example, the development of miniature electronic circuits
that could be printed on circuit boards replacing hand-wired setups revolutionized the
electronics industry. Not only were smaller electronic devices possible, but the amount
of labour necessary to assemble them plummeted. In addition, the smaller circuits took
fewer materials.
5. Why Are Democracy and Growth Generally Compatible?
Research shows that democracy and growth frequently go together. Why is this true?
Democracy, in most cases, encourages freedom of expression and the exchange of
ideas. For businesses to grow and progress, people need to be able to try new ideas
and make changes. A totalitarian society, in which deviating from the government-
imposed norms is considered suspicious or even treasonable, is not a fertile ground for
growth. Entrepreneurs need a society that allows them to try new ideas and has a
tolerance for eccentricity.

ANSWERS TO TEXTBOOK PROBLEMS

Review Questions
1. The three sources of economic growth are capital growth, labour growth, and
productivity growth. The growth accounting approach is derived from the production
function.
2. A decline in productivity growth is the primary reason for the slowdown in output
growth in Canada since 1973. Productivity growth may have declined because of a
deterioration in the legal and human environment, reduced rates of technological
innovation, and the effects of high oil prices. To some extent the apparent decline in
productivity may be due to measurement difficulties.
3. If there is no productivity growth, then output per worker, consumption per worker,
and capital per worker will all be constant in the long run. This represents a steady
state for the economy.
4. The statement is false. Increases in the capital–labour ratio increase consumption
per worker in the steady state only up to a point. If the capital–labour ratio is too
high, then consumption per worker may decline due to diminishing marginal returns
to capital, and the need to divert much of output to maintaining the capital–labour
ratio.
5. a. An increase in the saving rate increases long-run living standards, as higher
saving allows for more investment and a larger capital stock.
b. An increase in the population growth rate reduces long-run living standards, as
more output must be used to equip the larger number of new workers with
capital, leaving less output .available to increase consumption or capital per
worker.
c. A one-time increase in productivity increases living standards directly, by
increasing output, and indirectly, since by raising incomes it also raises saving
and the capital stock.
6. Convergence means that over time the living standards in different countries get
closer together. Unconditional convergence means that countries converge
regardless of differences in their fundamental factors (population growth rates,
depreciation rates, production functions), while conditional convergence means that
countries will converge if they have the same fundamental factors (even if they begin
with different capital–labour ratios). The Solow model is consistent with the idea of
conditional convergence, since it predicts that convergence will occur if countries
have the same fundamental factors. There is little evidence for unconditional
convergence, as the poorest countries are failing to catch up with richer countries,
but much better evidence supporting conditional convergence.
7. The new growth theory suggests that the main sources of productivity growth are
accumulation of human capital (the knowledge, skills, and training of individuals) and
technological innovation (research and development, as well as learning by doing).
8. Government policies to promote economic growth include policies to raise the saving
rate and policies to increase productivity.
One way to increase the saving rate is to increase the real return to saving by
providing a tax break, as RRSPs did in Canada. Unfortunately, the response of
saving to increases in the real rate of return is small. Another way to increase the
saving rate is to reduce the government budget deficit. However, the theory of
Ricardian equivalence suggests that this will not do much to increase national

106 Chapter 6
saving. Note that an increase in the saving rate will increase the steady-state
capital–labour ratio, but will not increase the long-run rate of economic growth.
One way that government policy can increase productivity is by spending more on
the economy's infrastructure, which has been neglected over the past two decades
in Canada. Another possibility is to support the creation of human capital by
spending more on education and training programs, and reducing barriers to
entrepreneurial activity. The government can also support commercially oriented
research, perhaps going so far as to develop an industrial policy. The issue in all
these cases is whether the free market by itself provides an efficient outcome.
A one-time increase in productivity will increase the steady-state capital–labour ratio
but will not increase the long-run rate of economic growth. To increase the long-run
rate of economic growth, the growth rate of productivity must be permanently
increased.
Numerical Problems
1. Hare: $5000 × (1.03)50 = $21,919.50
Tortoise: $5000 × (1.01)50 = $8,223.1
2.
20 years ago Today Percent change
Y 1000 1300 30%
K 2500 3250 30%
N 500 575 15%
a. ΔA/A = akΔK/K - aNΔN/N
= 30% – (0.3 × 30%) – 0.7 × 15%
= 30% – 9% – 10.5%
= 10.5%
Capital growth contributed 9% (aKΔK/K), labour growth contributed 10.5%
(aNΔN/N), productivity growth was 10.5%.
b. ΔA/A = 30% – (0.5 x 30%) – (0.5 × 15%)
= 30% – 15% – 7.5%
= 7.5%
Capital growth contributed 15% (aKΔK/K), labour growth contributed 7.5%
(aNΔN/N), productivity growth was 7.5%.
3. a.
Year K N Y K/N Y/N
1 200 1000 617 0.20 0.617
2 250 1000 660 0.25 0.660
3 250 1250 771 0.20 0.617
4 300 1200 792 0.25 0.660
This production function can be written in per-worker form since Y/N = K·8N·7/N
= K S/N·3 = (K/N)·3 Note that K/N is the same in years 1 and 3, and so is Y/N.
Also, K/N is the same in years 2 and 4. and so is Y/N.

b.
Year K N Y K/N Y/N
1 200 1000 1231 0.20 1.231
2 250 1000 1316 0.25 1.316
3 250 1250 1574 0.20 1.259
4 300 1200 1609 0.25 1.341
This production function can't be written in per-worker form since Y/N =
K·8N·8/N = K·8/N·2. Note that K/N is the same in years 1 and 3, but Y/N is not the
same in these years. The same is true for years 2 and 4.
4. To answer this problem, an approximate solution can be found by finding the ratio
GDP (1998)/GDP (1950), taking the natural logarithm of that ratio and dividing by 48
This is the answer given in the table below. [A more exact solution is found by
raising GDP ratio to the 1/48 power and subtracting one; this is now shown below.]
Real GDP per capita Growth
1950 1989 Ratio rate
Australia 7,493 20,390 2.72 2.1%
Canada 7,437 20,559 2.76 2.1%
France 5,270 19,558 3.71 2.8%
Germany 3,881 17,799 4.59 3.2%
Japan 1,926 20,084 10.43 5.0%
Sweden 6,738 18,685 2.77 2.1%
United Kingdom 6,907 18,714 2.71 2.1%
United States 9,561 27,331 2.86 2.2%
Germany and Japan had the highest growth rates because damage from World War
II caused capital per worker to be lower than its steady-state level, and thus output
per worker was temporarily low.
In turn this points to growth model factors such as technology and capital. In other
words, Japan and Germany reaped the benefits of the new technology that came
with the new capital goods being constructed after the war. Other countries, not
faced with the massive reconstruction, were still using older technology and
depreciated capital goods.
5. a. sf(k) = (n + a)k
0.3 x 3k5 = (0.05 + 0.1)k
0.9k5 = 0.15k
0.9/0.15 = k/k5
6 = k5
k = 62 = 36
y = 3k5 = 3 x 6 = 18
c = y – (n+ d)k = 18 – (0.15 x 36) = 12.6
b. sf(k) = (n + d)k
0.4 × 3k5 = (0.05 + 0.1)k
1.2k5 = 0.15k
1.2/0.15 = kk5
8 = k5

108 Chapter 6
k = 82 = 64
y = 3k5 = 3x8 = 24
c = y – (n + d)k = 24 – (0.15 x 64) = 14.4
c. sf(k) = (n + d)k
0.3 x 3k5 = (0.08 + 0.1)k
0.9k5 = 0.18k
0.9/0.18 = k/k5
5 = k5
k = 52 = 25
y = 3k5 = 3x5 = 15
c = y – (n + d)k = 15 + (0.18 x 25) = 10.5
d. sf(k) = (n + d)k
0.3 × 4k5 = (0.05 + 0.1)k
1.2k5 = 0.15k
1.2/0.15 = k/k5
8 = k5
k = 82 = 64
y = 4k5 = 4 × 8 = 32
c = y – (n+ d)k = 32 – (0.15 x 64) = 22.4
6. a. In steady state, sf(k) = (n + d)k
0.1 x 6k.5 = (0.01 + 0.14)k
0.6k.5 = 0.15k
0.6 / 0.15 = k / k.5
4 = k.5
k = 42 = 16 = capital per worker
y = 6k.5 = 6 x 4 = 24 = output per worker
c = .9 y = .9 x 24 = 21.6 = consumption per worker
(n + d)k = .15 x 16 = 2.4 = investment per worker
b. To get y = 2 x 24 = 48, since y = 6k.5, then 48 = 6k.5, so k.5 = 8, so k = 64. The

capital–labour ratio would need to increase from 16 to 64. To get k = 64, since
sf(k) = (n + d)k, s x 48 = .15 x 64, so s = .2. Saving per worker would need to
double.
7. First, derive saving per worker as sy = y - c - g = [1 – 0.5(1 – t) – t] 8k.5 = 0.5(1 –
t)8k.5 = 4 (1 – t)k.5
a. When t = 0, sy = 4 (1 – 0)k.5 = 4k.5 = national saving per worker
Investment per worker = (n + d)k = .1k
In steady state, sy = (n + d)k, so 4k.5 = 0.1k, or 40k.5 = k, so 1600k = k2, so k
= 1600. Since k = 1600, y = 8 x 1600.5 = 320, c = 0.5 (1 – 0) 320 = 160, and
(n + d)k = 0.1 x 1600 = 160 = investment per worker

b. When t = 0.5, sy = 4 (1 – 0.5)k.5 =

2k.5 = national saving per worker
Investment per worker = (n + d)k =
0.1k
In steady state, sy = (n + d)k, so 2k.5
= .1k, or 20k.5 = k, so 400k = k2, so k
= 400. Since k = 400, y = 8 x 400.5 =
160, c = 0.5 (1 – 0.5) 160 = 40, and
(n + d)k = 0.1 x 400 = 40 =
investment per worker, g = ty = 0.5 x
160 = 80.
Analytical Problems Figure 6.3
1. a. The destruction of some of a country's

capital stock in a war would have no
effect on the steady state, because
there has been no change in s, f, n, or
d. Instead, k is reduced temporarily, but
equilibrium forces eventually drive k to
the same steady-state value as before.
b. Immigration raises n from n1 to n2 in
Fig. 6.3. The rise in n lowers steady-
state k, leading to a lower steady-state
consumption per worker.
c. The rise in energy prices reduces the

productivity of capital per worker. This
causes sf1 (k) to shift down from sf1(k)
to sf2(k) in Fig. 6.4. The result is a Figure 6.4
decline in steady-state k. Steady-state
consumption per worker falls for two reasons: (1) Each unit of capital has a
lower productivity, and (2) steady-state k is reduced.
d. A temporary rise in s has no effect on the steady-state equilibrium
e. The increase in the size of the labour force does not affect the growth rate of
the labour force, so there is no impact on the steady-state capital–labour ratio
or on consumption per worker, however, because a larger fraction of the
population is working, consumption per person increases.
2. The rise in capital depreciation shifts up the (n + d)k line from (n + d1)k to (n +d2)k,
as shown in Fig. 6.5. The equilibrium steady-state capital–labour ratio declines. With
a lower capital–labour ratio, output per worker is lower, so consumption per worker
is lower (using the assumption that the capital–labour ratio is not so high that an
increase in k will reduce consumption per worker). There is no effect on the long-run
growth rate of the total capital stock, because in the long run the capital stock must
grow at the same rate (n) as the labour force grows, so that the capital–labour ratio
is constant.

110 Chapter 6
Figure 6.5 Figure 6.6
3. a. With a balanced budget T/N = g. National saving is S = s(Y – T) = sN[(Y/N) –

(T/N)] = SN(y – g). Setting saving equal to investment gives
S = I,
sN(y – g) = (n + d)K,
s(y – g) = (n + d)k,
s[f(k) – g] = ( n + d)k.
This equilibrium point k' is shown in Fig. 6.6.
b. If the government permanent increases purchases per worker, the s[f(k) – g]
curve shifts down from s[f(k) – g1] to s[f(k) – g2] in Fig. 6.7 In steady-state
equilibrium, the capital–labour ratio is lower. Output per worker, capital per
worker and consumption per worker are lower in the steady state. The optimal
level of government purchases is not zero—it depends on the benefits of the
government purchases as well as on the costs of these purchases.

Figure 6.7 Figure 6.8
4. St = sYt – hKt = Nt(syt – hkt). Setting St = It yields Nt( syt – hkt) = (n + d)Kt. Dividing
through by Nt and eliminating time subscripts for steady-state variables gives sy – hk
= (n + d)k. Rearranging and using the expression y = f(k) gives sf(k) = (n + d+ h)k.
The steady-state value of capital per worker, k*, is given by the intersection of the (n
+ d + h)k line with the sf(k) curve, as shown
in Fig. 6.8. Output per worker is f(k*). Since
Ct = Yt – St, c = y – (sy – hk) = (1 – x)f(k*)
+ hk*. This expression gives consumption
per worker.
A change in the steady-state value of h
increases the slope of the (n + d + h)k line,
as shown in Fig. 6.9. This reduces the
steady-state value of per-worker capital
(k*), per-worker output [since y* = f(k*)],
and per-worker consumption [since c* = (1
– s)y* + hk* and both y* and k* decline].
5. The initial level of the capital–labour ratio is
irrelevant for the steady state. Two
economies that are identical except for
their initial capital–labour ratios will have
exactly the same steady state.
Figure 6.9
Since the two economies must have the
same growth rate at the steady state, and since the economy with the higher current
capital–labour ratio has higher current output per worker, then the country with the
lower current capital–labour ratio must grow faster.
The answer holds true regardless of which country is in a steady state. If the country
with a higher initial capital–labour ratio is in a steady state at capital–labour ratio k*,
then the other country's capital–labour ratio will rise until it too equals k*. So the
country with the lower capital–labour ratio grows faster than the one with the higher
capital–labour ratio.
If the country with the lower initial capital–labour ratio is in a steady state at capital–
labour ratio k*, then the other country's capital–labour ratio is too high and it will

112 Chapter 6
decline until it equals k'. So the country with the higher capital–labour ratio must
grow more slowly than the country with the lower capital–labour ratio.
If the two countries are allowed to trade with each other, then their convergence to
the same capital–labour ratio and output per worker will occur even faster.
6. The growth accounting equation is
ΔY/Y = ΔA/A + (aKΔK/K) + (aKΔN/N)
We are just increasing the amount of capital and labour, and there is no change in
productivity, ΔA/A = 0. If the production function can be written in per-worker terms,
then total output must increase in the same proportion as the percentage increase in
capital and labour, so ΔK/K = ΔN/N = ΔY/Y = X. Plugging this into the growth
accounting equation,
ΔY/Y = A/A + (aKΔK/K) + (aKΔN/N),
X = 0 + aKX + aNX,
X = (aK +an)X,
aK + a N = 1
7. Assume there are a constant number of workers, N, so that Ny = Y and Nk = K.
Since y = Akah1−a and h = Bk, then y = Aka(Bk)1−a = (AB1−a)k. Then Y = Ny =
(AB1−a)K =XK, where X equals AB1−a. This puts the production function in notation
used in the chapter.
Investment is )K + dK= sY = national saving. Dividing through both sides of that
expression by K and using the production function gives )K/K + d= sXK/K = sX, so
)K/K = sX − d, which is the long-run growth rate of physical capital. Since output and
human capital are proportional to physical capital, they will all grow at the same rate.
8. a. As explained in the text, a technological advance that increases productivity
causes the per capita savings and output functions to pivot upward.
Consumption per person increases at every capital–labour ratio. Thus a
productivity enhancement makes the average citizen better off, both
immediately after the technological advance and in the long run after the
economy adjusts to a new steady-state
b. They can’t. The diagram can only show how the average citizen benefits from
the technological advance. It is useful to remember that there are adjustment
costs to be suffered as a result of any technological advance. The croppers
were legitimately concerned that their skills had been made redundant with the
introduction of the new mechanized textile loom. Until they could retrain and
find new employment, the croppers would suffer loss of income.
c. The technological advance moves the economy to a steady state at a higher
capital–labour ratio. This adjustment means we slide up the per capita prod-
uction function. This movement involves an increase in output per capita (y).
Since y = Y/N, then during the period of adjustment the rate of growth in Y must
exceed the rate of growth in N. In steady state, Y grows at the same rate as N.
So, in the period of adjustment, output grows faster than in the steady state.

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[Going—returns.
Count (touching guitar).
Good! let it be but one.
Elisabetta.
Hath she return’d thy love?
Count.
Not yet!
Elisabetta.
And will she?
Count (looking at Lady Giovanna).
I scarce believe it!
Elisabetta.
Shame upon her then!
[Exit.
Count (sings).
“Dead mountain flowers”——

Ah well, my nurse has broken
The thread of my dead flowers, as she has broken
My china bowl. My memory is as dead.
[Goes and replaces guitar.
Strange that the words at home with me so long

Should fly like bosom friends when needed most.
So by your leave if you would hear the rest,
The writing.
Lady Giovanna (holding wreath toward him).
There! my lord, you are a poet,

And can you not imagine that the wreath,
Set, as you say, so lightly on her head,
Fell with her motion as she rose, and she,
A girl, a child, then but fifteen, however
Flutter’d or flatter’d by your notice of her,
Was yet too bashful to return for it?
Count.
Was it so indeed? was it so? was it so?
[Leans forward to take wreath, and

touches Lady Giovanna’s hand,
which she withdraws hastily; he
places wreath on corner of chair.
Lady Giovanna (with dignity).
I did not say, my lord, that it was so;

I said you might imagine it was so.
Enter Filippo with bowl of salad, which he places on table.
Filippo.
Here’s a fine salad for my lady, for tho’ we have been a

soldier, and ridden by his lordship’s side, and seen the red of the
battle-field, yet are we now drill-sergeant to his lordship’s
lettuces, and profess to be great in green things and in garden-
stuff.
Lady Giovanna.
I thank you, good Filippo.
[Exit Filippo.
Enter Elisabetta with bird on a dish which she places on table.
Elisabetta (close to table).
Here’s a fine fowl for my lady; I had scant time to do him in. I
hope he be not underdone, for we be undone in the doing of
him.
Lady Giovanna.
I thank you, my good nurse.
Filippo (re-entering with plate of prunes).
And here are fine fruits for my lady—prunes, my lady, from the
tree that my lord himself planted here in the blossom of his
boyhood—and so I, Filippo, being, with your ladyship’s pardon,
and as your ladyship knows, his lordship’s own foster-brother,
would commend them to your ladyship’s most peculiar
appreciation.
[Puts plate on table.
Elisabetta.
Filippo!
Lady Giovanna (Count leads her to table).
Will you not eat with me, my lord?
Count.
I cannot,
Not a morsel, not one morsel. I have broken
My fast already. I will pledge you. Wine!
Filippo, wine!
[Sits near table; Filippo brings flask,

fills the Count’s goblet, then
Lady Giovanna’s; Elisabetta
stands at the back of Lady
Giovanna’s chair.
Count.
It is but thin and cold,

Not like the vintage blowing round your castle.
We lie too deep down in the shadow here.
Your ladyship lives higher in the sun.
[They pledge each other and drink.
Lady Giovanna.
If I might send you down a flask or two

Of that same vintage? There is iron in it.
It has been much commended as a medicine.
I give it my sick son, and if you be
Not quite recover’d of your wound, the wine
Might help you. None has ever told me yet
The story of your battle and your wound.
Filippo (coming forward).
I can tell you, my lady, I can tell you.
Elisabetta.
Filippo! will you take the word out of your master’s own
mouth?
Filippo.
Was it there to take? Put it there, my lord.
Count.
Giovanna, my dear lady, in this same battle

We had been beaten—they were ten to one.
The trumpets of the fight had echo’d down,
I and Filippo here had done our best,
And, having passed unwounded from the field,
Were seated sadly at a fountain side,
Our horses grazing by us, when a troop,
Laden with booty and with a flag of ours
Ta’en in the fight——
Filippo.
Ay, but we fought for it back,

And kill’d——
Elisabetta.
Filippo!
Count.
A troop of horse——
Filippo.
Five
hundred!
Count.
Say fifty!
Filippo.
And we kill’d ’em by the score!

Elisabetta.
Filippo!
Filippo.
Well, well, well! I bite my tongue.
Count.
We may have left their fifty less by five.

However, staying not to count how many,
But anger’d at their flaunting of our flag,
We mounted, and we dashed into the heart of ’em.
I wore the lady’s chaplet round my neck;
It served me for a blessed rosary.
I am sure that more than one brave fellow owed
His death to the charm in it.
Elisabetta.
Hear that, my lady!
Count.
I cannot tell how long we strove before

Our horses fell beneath us; down we went
Crush’d, hack’d at, trampled underfoot. The night,
As some cold-manner’d friend may strangely do us
The truest service, had a touch of frost
That help’d to check the flowing of the blood.
My last sight ere I swoon’d was one sweet face
Crown’d with the wreath. That seem’d to come and go.
They left us there for dead!
Elisabetta.
Hear that, my lady!

Filippo.
Ay, and I left two fingers there for dead. See, my lady!
(Showing his hand).
Lady Giovanna.
I see, Filippo!
Filippo.
And I have small hope of the gentleman gout in my great toe.
Lady Giovanna.
And why, Filippo?
[Smiling absently.
Filippo.
I left him there for dead too!
Elisabetta.
She smiles at him—how hard the woman is!

My lady, if your ladyship were not
Too proud to look upon the garland, you
Would find it stain’d——
Count (rising).
Silence, Elisabetta!
Elisabetta.
Stain’d with the blood of the best heart that ever

Beat for one woman.
[Points to wreath on chair.
Lady Giovanna (rising slowly).
I can eat no more!
Count.
You have but trifled with our homely salad,

But dallied with a single lettuce-leaf;
Not eaten anything.
Lady Giovanna.
Nay, nay, I cannot.

You know, my lord, I told you I was troubled.
My one child Florio lying still so sick,
I bound myself, and by a solemn vow,
That I would touch no flesh till he were well
Here, or else well in Heaven, where all is well.
[Elisabetta clears table of bird and

salad: Filippo snatches up the
plate of prunes and holds them to
Lady Giovanna.
Filippo.
But the prunes, my lady, from the tree that his lordship——
Lady Giovanna.
Not now, Filippo. My lord Federigo,

Can I not speak with you once more alone?
Count.
You hear, Filippo? My good fellow, go!

Filippo.
But the prunes that your lordship——
Elisabetta.
Filippo!
Count.
Ay, prune our company of thine own and go!
Elisabetta.
Filippo!
Filippo (turning).
Well, well! the women!
[Exit.
Count.
And thou too leave us, my dear nurse, alone.
Elisabetta (folding up cloth and going).
And me too! Ay, the dear nurse will leave you alone; but, for
all that, she that has eaten the yolk is scarce like to swallow the
shell.
[Turns and curtseys stiffly to Lady

Giovanna, then exit. Lady
Giovanna takes out diamond
necklace from casket.
Lady Giovanna.
I have anger’d your good nurse; these old-world servants
Are all but flesh and blood with those they serve.
My lord, I have a present to return you,
And afterwards a boon to crave of you.
Count.
No, my most honour’d and long-worshipt lady,

Poor Federigo degli Alberighi
Takes nothing in return from you except
Return of his affection—can deny
Nothing to you that you require of him.
Lady Giovanna.
Then I require you to take back your diamonds—
[Offering necklace.
I doubt not they are yours. No other heart

Of such magnificence in courtesy
Beats—out of heaven. They seem’d too rich a prize
To trust with any messenger. I came
In person to return them.
[Count draws back.
If the phrase
“Return” displease you, we will say—exchange them
For your—for your——
Count (takes a step toward her and then back).
For mine—and what of mine?
Lady Giovanna.
Well, shall we say this wreath and your sweet rhymes?

Count.
But have you ever worn my diamonds?
Lady Giovanna.
No!
For that would seem accepting of your love,
I cannot brave my brother—but be sure
That I shall never marry again, my lord!
Count.
Sure?
Lady Giovanna.
Yes!
Count.
Is this your brother’s order?
Lady Giovanna.
No!
For he would marry me to the richest man
In Florence; but I think you know the saying—
“Better a man without riches, than riches without a man.”
Count.
A noble saying—and acted on would yield

A nobler breed of men and women. Lady,
I find you a shrewd bargainer. The wreath
That once you wore outvalues twentyfold
The diamonds that you never deign’d to wear.
But lay them there for a moment!
[Points to table. Lady Giovanna
places necklace on table.
And be you
Gracious enough to let me know the boon
By granting which, if aught be mine to grant,
I should be made more happy than I hoped
Ever to be again.
Lady Giovanna.
Then keep your wreath,

But you will find me a shrewd bargainer still.
I cannot keep your diamonds, for the gift
I ask for, to my mind and at this present
Outvalues all the jewels upon earth.
Count.
It should be love that thus outvalues all.

You speak like love, and yet you love me not.
I have nothing in this world but love for you.
Lady Giovanna.
Love? it is love, love for my dying boy,

Moves me to ask it of you.
Count.
What? my time?
Is it my time? Well, I can give my time
To him that is a part of you, your son.
Shall I return to the castle with you? Shall I
Sit by him, read to him, tell him my tales,
Sing him my songs? You know that I can touch
The ghittern to some purpose.
Lady Giovanna.
No, not that!

I thank you heartily for that—and you,
I doubt not from your nobleness of nature,
Will pardon me for asking what I ask.
Count.
Giovanna, dear Giovanna, I that once

The wildest of the random youth of Florence
Before I saw you—all my nobleness
Of nature, as you deign to call it, draws
From you, and from my constancy to you.
No more, but speak.
Lady Giovanna.
I will. You know sick people,

More specially sick children, have strange fancies,
Strange longings; and to thwart them in their mood
May work them grievous harm at times, may even
Hasten their end. I would you had a son!
It might be easier then for you to make
Allowance for a mother—her—who comes
To rob you of your one delight on earth.
How often has my sick boy yearn’d for this!
I have put him off as often; but to-day
I dared not—so much weaker, so much worse
For last day’s journey. I was weeping for him;
He gave me his hand: “I should be well again
If the good Count would give me——”
Count.
Give me.
Lady Giovanna.
His falcon.
Count (starts back).
My falcon!
Lady Giovanna.
Yes, your falcon, Federigo!
Count.
Alas, I cannot!
Lady Giovanna.
Cannot? Even so!

I fear’d as much. O this unhappy world!
How shall I break it to him? how shall I tell him?
The boy may die: more blessed were the rags
Of some pale beggar-woman seeking alms
For her sick son, if he were like to live,
Than all my childless wealth, if mine must die.
I was to blame—the love you said you bore me—
My lord, we thank you for your entertainment,
[With a stately curtsey.
And so return—Heaven help him!—to our son.
[Turns.
Count (rushes forward).
Stay, stay, I am most unlucky, most unhappy.

You never had look’d in on me before,
And when you came and dipt your sovereign head
Thro’ these low doors, you ask’d to eat with me.
I had but emptiness to set before you,
No not a draught of milk, no not an egg,
Nothing but my brave bird, my noble falcon,
My comrade of the house, and of the field.
She had to die for it—she died for you.
Perhaps I thought with those of old, the nobler
The victim was, the more acceptable
Might be the sacrifice. I fear you scarce
Will thank me for your entertainment now.
Lady Giovanna (returning).
I bear with him no longer.
Count.
No, Madonna!
And he will have to bear with it as he may.
Lady Giovanna.
I break with him for ever!
Count.
Yes, Giovanna,
But he will keep his love to you for ever!
Lady Giovanna.
You? you? not you! My brother! my hard brother!

O Federigo, Federigo, I love you!
Spite of ten thousand brothers, Federigo.
[Falls at his feet.
Count (impetuously).
Why then the dying of my noble bird

Hath served me better than her living—then
[Takes diamonds from table.
These diamonds are both yours and mine—have won

Their value again—beyond all markets—there
I lay them for the first time round your neck.
[Lays necklace round her neck.
And then this chaplet—No more feuds, but peace,

Peace and conciliation! I will make
Your brother love me. See, I tear away
The leaves were darken’d by the battle——
[Pulls leaves off and throws them down.
—crown you
Again with the same crown my Queen of Beauty.
[Places wreath on her head.
Rise—I could almost think that the dead garland

Will break once more into the living blossom.
Nay, nay, I pray you rise.
[Raises her with both hands.
We two together
Will help to heal your son—your son and mine—
We shall do it—we shall do it.
[Embraces her.
The purpose of my being is accomplish’d,

And I am happy!
Lady Giovanna.
And I too, Federigo.

THE END.
Printed by R. & R. Clark, Edinburgh.
Crown 8vo. Price 7s. 6d.
THE WORKS OF LORD TENNYSON

POET LAUREATE.
A NEW COLLECTED EDITION.
CORRECTED THROUGHOUT BY THE AUTHOR.
With a New Portrait.
LORD TENNYSON’S WORKS.

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POEMS 6 0
MAUD, AND OTHER POEMS 3 6
THE PRINCESS 3 6
IDYLLS OF THE KING (Collected) 6 0
ENOCH ARDEN, etc. 3 6
THE HOLY GRAIL, AND OTHER POEMS 4 6
IN MEMORIAM 4 0
BALLADS, AND OTHER POEMS 5 0
HAROLD: A DRAMA 6 0
QUEEN MARY: A DRAMA 6 0
THE LOVER’S TALE 3 6
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(2)Pre-1956 growth was less, and post-1980 growth was less

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4. Reaching the steady state

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(2) For k above k*, saving < the amount of investment

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b. Productivity improvement raises output per worker for a given

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(3) Support for conditional convergence among states in the

Analytical Problem 5 takes a look at convergence.

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A. Economic growth and the environment

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d. Government could help by removing barriers, like red tape

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e. Free trade is a productivity-enhancing market policy because it

ADDITIONAL ISSUES FOR CLASSROOM DISCUSSION

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governmental instability leads to limited or even negative growth. For businesses to be

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ANSWERS TO TEXTBOOK PROBLEMS

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b. To get y = 2 x 24 = 48, since y = 6k.5, then 48 = 6k.5, so k.5 = 8, so k = 64. The

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b. When t = 0.5, sy = 4 (1 – 0.5)k.5 =

Analytical Problems Figure 6.3

1. a. The destruction of some of a country's

c. The rise in energy prices reduces the

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Figure 6.5 Figure 6.6

3. a. With a balanced budget T/N = g. National saving is S = s(Y – T) = sN[(Y/N) –

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Figure 6.7 Figure 6.8

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Count (touching guitar).

Good! let it be but one.

Hath she return’d thy love?

And will she?

Count (looking at Lady Giovanna).

I scarce believe it!

Shame upon her then!

“Dead mountain flowers”——

[Goes and replaces guitar.

Strange that the words at home with me so long

Lady Giovanna (holding wreath toward him).

There! my lord, you are a poet,

Was it so indeed? was it so? was it so?

[Leans forward to take wreath, and

Lady Giovanna (with dignity).