Economic Growth

Economic Growth Defined as:

• Sustained increase in Real GDP over time
• Sustained increase in  Real GDP per capita over time

Reasons for Growth

• Growth leads to greater prosperity for society
• Lessens burden of scarcity
• Increase general level of well being

Conditions for Growth

• Sound legal and economic institutions
• Eco. freedom
• Respect private property
• Political and economic stability (low inflationary expectations)
• Willingness to sacrifice current consumption in order to grow
• Savings
• Trade

Physical Growth

• Tools; machinery, factories, infrastructure
• Physical capital is product of investment
• Investment = affected by interest rates and expected rates of return
• Takes capital to make capital
• Maintained Capital

Technology and Productivity

• Research and development, innovation and invention yield increase in available technology
• More technology on hands = increase productivity
• Productivity is output per worker
• More productivity = more economic growth

Human Capital

• People most important resource, therefore human capital must be developed
• Education
• Economic freedom
• Right to acquire private property
• Incentives
• Clean water & stable food supply
• Access to new technologies