Unit 6 - Economic Growth & Productivity (From Ms. McCartney's Powerpoint)

Economic Growth

• Sustained increase in Real GDP over time.
• Sustained increase in Real GDP per Capita over time. 

Grow - leads to greater prosperity for society. It lessens the burden of scarcity and increases the level of well-being.

• Conditions
• Rule of law.
• Sound Legal & Economic Institutions.
• Economic freedom.
• Respect for private property.
• Political & Economic stability -Low inflation expectancy.
• Willingness to sacrifice current consumption.
• Saving.
• Trade.

Physical Capital - product of investment (sensitive to interest rates and expected rates of return).

• Tools, machinery, and factories.
• Takes capital to make capital.
• Capital must be maintained.

Technology & Productivity

• More technology = Increases productivity.
• Productivity - output per unit of input.
• Labor productivity - output per worker.
• More Productivity = Economic Growth.
• Research + development and innovation + invention = Increases in technology.

Human Capital - people are the most important resources, so they must be developed.

• Education.
• Economic Freedom.
• The right to acquire private property.
• Incentives.
• Clean water and stable food supply.
• Access to technology.

How to show Economic Growth Graphically

1. LRAS shifts to the right.
2. PPC shifts outward. 

Obstacles 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.