2. 1. Adding to Physical Capital – High rates of savings & investment spending 2. Adding to Human Capital – Making education a priority 3. Technology Progress – Translating scientific knowledge into practical use ◦ research and development (R&D) — spending to create and implement new technologies

3. 1. Governments & Physical Capital – Direct role in building infrastructure & indirect role in making high rates of private investment spending possible 2. Governments & Human Capital – Government spending on primary & secondary education 3. Government & Technology – Important R & D done by government agencies 4. Promotes political stability and protects property rights

4.  Limited supply of natural resources & impact of growth on the environment  Differing views of sustainability center on 3 questions: 1.How large are supplies of key natural resources? 2.How effective will technology be in finding alternatives? 3.Can long-run growth continue in face of resource scarcity?  High prices for scarce resources are incentives for conservation and R & D into alternatives

5.  When effective environmental action is not in place, growth tends to increase human impact on the environment  Environmental problems are negative externality  Businesses will only incur cost to fix environmental issues if government regulations force them to  Broad consensus among economist that gov’t action is needed to deal with climate change through market-based incentives, but dispute over how much action is appropriate

7.  Over time, production of consumer goods without replenishment will lead to depreciation, shifting PPC inward  Production of capital goods leads to outward shift of PPC  Governments promote long-run growth by investing in physical capital

8.  LRAS reflects level of production when all prices are flexible  Actual real GDP is almost always fluctuating around Y P  Long-run growth results in rightward shift of LRAS

9. On PPC: ◦ Short-run changes show as a point on – or inside – the curve ◦ Long-run changes result in shifts of the PPC On AD-AS: ◦ Short-run changes result in shifts of AD or SRAS ◦ Long-run changes result in shifts of LRAS