Economic Growth and Productivity

A . Investment in human capital-making people more productive

Public funding for education is the most common investment in human capital.

Firms hire labor and train the labor to be more productive-an investment in human capital.

B . Investment in physical capital

Physical capital is machines that labor use to create goods and services.

Firms use both loans and other investment tools to purchase more physical capital.

A nation with a high savings rate will invest in more capital and grow the capacity (LRAS) of the economy.

C . Research and development, and technological progress

Research and development funds can spur innovation and change causing technology to increase productivity.

Investments in technology increase productivity and increase productive capacity.

D . Growth policy

Macroeconomic policy that provides stability, property rights, and incentives for investment and growth tend to see the capacity of the economy to increase.