Economic growth
- sustained increase in real GDP over time
- Sustained increase in real GDP per capital over time
Growth
- Leads to greater prosperity for society,lessens the burden of scarcity and increase the level of well being
- Conditions for growth
- rule of law
- sound and legal economic institutions
- economic freedom
- respect for private property
- political and economic stability
- willing to sacrifice current consumption
- saving
- Trade
Physical capital-product of investment (sensitive to interest rate and expected rate of return)
- Tools ,machinery and factories
- takes capital to make capital
- capital must be maintained
Technology and productivity
- More technology =increase productivity
- productivity-output per inut of input
- labor productivity-output per worker
- More productivity=economic growth
Human capital
- people are the most important resources
- education
- economic freedom
- private property
- incentive
- clean water and stable food
- access to technology
Obstacle to growth
- Economic and Political Instability – such as high inflation expectancy.
- No of the rule of law.
- Diminished private property rights.
- Negative incentives.
- Lack of savings.
- Excess current consumption.
- Failure to maintain existing capital.
- Crowding out of investment – government deficits & debts increasing long term interest rates.
- Restrictions on free international trade.
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