•Sustained
increase in Real GDP over time.
•Sustained
increase in Real GDP per Capital over time.
Why Grow?
•Growth leads to greater prosperity for society.
•Lessens the burden of scarcity.
•Increases the general level of well-being.
Conditions for Growth
•Rule of Law
•Sound Legal and
Economic Institutions
•Economic Freedom
•Respect for
Private Property
•Political &
Economic Stability
–Low
Inflationary Expectations
•Willingness to
sacrifice current consumption in order to grow
•Saving
•Trade
Physical Capital
•Tools,
machinery, factories, infrastructure
•Physical Capital
is the product of Investment.
•Investment is
sensitive to interest rates and expected rates of return.
•It takes capital
to make capital.
•Capital must be
maintained.
Technology & Productivity
•Research and
development, innovation and invention yield increases in available technology.
•More technology
in the hands of workers increases productivity.
•Productivity is
output per worker.
•More
Productivity = Economic Growth.
Human Capital
•People are a country’s most important resource. Therefore human capital must be developed.
•Education
•Economic Freedom
•The right to acquire private property
•Incentives
•Clean Water
•Stable Food Supply
•Access to technology
Hindrances to Growth
•Economic and Political Instability
–High inflationary expectations
•Absence of the rule of law
•Diminished Private Property Rights
•Negative Incentives
–The welfare state
•Lack of Savings
•Excess current consumption
•Failure to maintain existing capital
•Crowding Out of Investment
–Government deficits & debt increasing long term interest rates!
•Increased income inequality à Populist policies
•Restrictions on Free International Trade
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