- The increase in the potential level of real output the economy can produce over a period of time, such as a year
- this is the long-run economic growth- increases total productive capacity
- whereas short-run - makes use of spare capacity and takes up the slack in the economy
- Economic growth requires the stock of physical capital to grow in size and for its quality to improve
Causes of economic growth
- investment in both physical and human capital
- techinal progress
- growth of the working population
Net investment enlages the stocks of capital, while techinal progress leads to better quality capital replacing capital goods that have become obsolete or out of date.
This also leads to higher labour productivity which is another feature of growth.
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