I) Economic growth
a) definition - occurs when there are increases in per capita real GDP, measured by the rate of change in per capita real GDP per year.
b) the limitation of economic growth is that it says nothing about the distribution of economic growth, only whether the overall economy is growing.
II) What causes economic growth
a) increases in labor - this is true for real gdp, but not for per capita real GDP, since the extra output is merely be shared among more people
b) savings - the more savings, the more money for investment in new machinery and equipment
i) measured by dividing total real GDP by the number of workers
ii) productivity increases when you can get more real GDP with the same #of workers
III) productivity and technology
a) new technology for workers is the way you get more productivity. New Growth theory tells us how economies develop these new technologies.
i) greater rewards for technology acts as an incentive to innovate
ii) innovation - more broad than simply inventing. Innovating takes a new invention and applies it to the economy (i.e. the innovators in the computer industry. examples Bill Gates and Steve Jobs)
b) This points to the importance of institutions and human capital
i) institutions - private property, effective government.
ii) human capital - a knowledgeable workforce.
iii) patents - government protection that gives an innovator the exclusive right to make, use or sell an invention for a limited period of time (currently, 20 years).