Principles of Macroeconomics – Economic Growth (Lecture 4.1) 1

Principles of Macroeconomics – Economic Growth (Lecture 4.1) 1

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Principles of Macroeconomics – Economic Growth (Lecture 4.1) Economic growth is the sustained expansion of production possibilities measured as the trend increase in real GDP over a given period. Preconditions for Economic growth The most basic precondition for economic growth is an appropriate incentive system. Three institutions are critical for incentives. They are: o Property rights This is important as it is linked with the rule of law, such as to prevent arbitrary confiscation of property. Encourages investment in wealth. Enables specialization. o Markets This opens up the opportunity to create comparative advantage and trade between markets to improve the standard of living. This can also be done without money, but inefficient. Enables specialization. o Monetary exchange Also enables specialization. These are necessary but not sufficient, meaning that Causes of Economic Growth The quantity of real GDP supplied depends on three factors
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This note was uploaded on 09/27/2011 for the course FINANCE 1001 taught by Professor Profassorted during the Three '11 term at University of Adelaide.

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Principles of Macroeconomics – Economic Growth (Lecture 4.1) 1

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