Regardless of the savings rate, expenditures on capital directly affect the growth rate of an economy. They inject the economy with new tools, machinery, and training. These forms of capital are basic necessities of production. For a given amount of labor, such an increase in capital will increase possible output. Technological progress 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
This is the end of the preview.
access the rest of the document.