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Unformatted text preview: Of course, spending money to simply increase the amount of capital in an economy is not the only way to increase productivity. Increases in the quality of capital can also affect growth. The major way the quality of capital is increased is through technological progress, the fruit of research and development. Technological advances can allow a given unit of capital to enable a given unit of labor to increase production. This increase is contrasted to the increase created by simply enlarging capital expenditures. In the latter case, a given unit of labor has more capital to work with and can thus produce more output; while in the former case a given unit of labor can produce more output with a given unit of capital. How does technological progress come about? The major ways are though innovation and invention. Every year, billions of dollars are spent on research and development by and invention....
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- Fall '10