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Section 3—Economic Growth Measuring Economic Growth -GDP and Population Growth -to account for population increases in an economy economists use a measurement of real GDP per capita -real GDP divided by the total population -Real GDP per capita is best measure of a nation’s standard of living -GDP and Quality of Life -Like measurements of GDP… real GDP per capita excludes many factors that affect the quality of life -state of the environment, stress, etc -provides avg output per person but not how that output is distributed -high per capita GDP usually means better nutrition, safer housing, longer life spans, better education Capitol Deepening -The process of increasing the amount of capital per worker -one of the most important sources of growth in modern economies. -firms increase physical capital by purchasing more equipment…leads to more output or economic growth -firms + employees increase human capital through additional training + education Savings + Investment -output can be used for consumption by consumers or investment by firms -income not used for consumption is called saving -whatever is not consumed must be invested -savings is equal to investment -the proportion of disposable income saved is called the savings rate -when consumers save or invest, their money becomes available for firms to borrow or use…this allows firms to deepen capital -in the long run, more savings will lead to higher output + income for the population, raising GDP and living standards Population Growth -if population grows while the supply of capital remains constant, the amount of capital per worker will shrink -this process is the opposite of capital deepening…leads to lower living standards Government -government can affect the process of economic growth by raising or lowering taxes -government use of tax revenues also affects growth… funds spent on public goods increase investment, while funds spent on consumption decrease net investment Foreign Trade -trade deficits… importing more goods than exporting, can sometimes increase investment + capital deepening if the imports consist of investment goods(structures + equipment) rather than consumer goods Technological Progress -an increase in efficiency gained by producing more output without using more inputs -factors contributing to technological progress -Scientific Research- generates new + improved production techniques -results in better goods + services -Innovation- when new products + ideas are successfully brought to market, output goes up, boosting GDP + business profits. -Scale of the Market- larger markets provide more incentives for innovation b/c potential profits are greater. -Education and Experience- increased human capital makes workers more productive, educated workers also have the necessary skills needed to use new technology -Natural Resource Use- increase can create need for new technology