Growth level vs. growth rate When discussing growth, there is an important distinction that must be made. The growth level is the starting value of whatever is growing; the growth rate is the change in the growth level from year to year. These distinctions allow for accurate descriptions of economic policies on long-run growth. An example will help to illustrate the level vs. rate distinction. Let's use the idea of capital presented in the preceding section. Say a company owns 50 riveting tools like the one used by Joe. In order to increase output, the company decides to purchase 5 new riveting tools next year. In this case, the level of capital is 50 because this is the amount that the firm began with. The growth rate of capital is 10% because from one year to the next the amount of capital used by Joe's firm increased by 10%. 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
This is the end of the preview. Sign up
access the rest of the document.
This note was uploaded on 02/09/2012 for the course ECO ECO2013 taught by Professor Jominy during the Fall '08 term at Broward College.