Problem :
What is the capital stock and how is it increased?
The capital stock is the total amount of capital, both human and
physical, in an economy or firm. It is increased by spending money on
capital items.
Problem :
What is the single most important factor in determining the annual increase in the capital stock?
The single most important factor in determining the annual increase in the capital stock is the savings rate in an economy.
Problem :
What is the effect of an increase in the capital stock?
An increase in the capital stock results in an increase in output for a
given amount of labor.
Problem :
How does technological progress come about?
Technological progress generally comes about through spending on research and development.
Problem :
What is more important for increasing productivity, increased capital expenditures or increased technological progress?
Neither is superior. Instead, each is required for sustained economic
growth. Because technological progress is unpredictable, that is, it
is present and very important at times and not at others, capital
expenditures are able to increase productivity with current capital.
When technological progress is ready to provide new capital for
production, then the importance shifts. In this way, the forces of
capital expenditures and technological progress work hand in hand to
increase productivity.
