- Sustained increase in real GDP over time
- Sustained increase in real GDP per Capita over time
Why Grow?
- Leads to greater prosperity for society
- Lessens burden of scarity
- Increases the general level of well being
Conditions for Growth
- Rule of Law
- Sound legal and Economic Institution
- Economic freedom
- Respect for private property
- Political and Economic Stability
- Low inflationary expectation
- Willingness to sacrifice current consumption in order to grow
- Saving
- Trade
Physical Capital
- Tools, machinery, factories, infrastructure
- Physical capital is the product of invesment
- Investment is sensitive to interest rate and expected rate of return
Rate of Return
- It take capital to make capital
- Capital must be maintained.
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