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Economic Growth

Problems

Labor productivity growth

Requirements for increased growth

Problem :

What is the only thing that makes an economy grow in the long run?

Labor productivity growth is the only thing that makes an economy grow in the long run.

Problem :

How do firms produce output?

Firms produce output through a combination of capital and labor.

Problem :

What types of things make up the general category of capital?

Capital includes money, machinery, and intellectual property.

Problem :

How are the growth level and the growth rate different?

The growth level is the starting value of whatever is growing; the growth rate is the change in the growth level from year to year.

Problem :

Why is the distinction between growth level and growth rate important?

If increasing economic growth now results in relatively poorer long-term economic growth, politicians may be tempted to trade an increase in the growth rate (and their current approval ratings) for a slightly lower economic growth level.

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