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

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.  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 tech be in finding alternatives? 3.Can long-run growth continue in face of resource scarcity?  High prices for scarce resources are incentives for conservation & R & D into alternatives

5.  When effective environmental action is not in place, growth tends to increase human impact on the environment  Advanced counties tend to have better management  Environmental problems are negative externality  Businesses will only incur cost to fix environmental issues if government regulations force them to

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

7.  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

8. 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

9. 1. Govt subsidies & tax incentives for firms to research new, more efficient, production tech 2. Govt policy emphasizes education – grad rate rises from 70 to 85%, & literacy rate rises from 98 to 99.5% 3. Central bank expands MS to boost spending & recover from a recession 4. To combat high unemployment, govt lowers income taxes & increases military spending

10. 5. Increased taxes on businesses 6. Improved national highway system 7. R & D leads to improved technology 8. Education results in increased labor productivity 9. Expansionary policy lowers interest rates 10. Govt policy fails to prevent civil war 11. Regulations established to maintain natural resources at sustainable levels

11. 12. Short-run impact of increased productivity 13. Productivity gains that last into the long run and create real economic growth.