1. GDP Growth

2. Potential GDP = Productive Capacity
This is graphically shown by production possibilities curve:
capital goods
consumer goods

3. What determines productive capacity?
Quantity and quality of resources available
Level of technology

4. While productive capacity is fixed in the short-run, long-run economic growth can occur, resulting in an increase in potential output:
Capital goods
Consumer goods

5. What is the primary source of long-run economic growth?
Increases in productivity: output per worker.

6. What are the sources of productivity growth?
Increases in human capital per worker
Increases in physical capital per worker
Technological advances

7. Institutional Structures that Promote Growth
Strong property rights, supported by rule of law
Competitive markets
High levels of savings and investment (which increases capital formation) and efficient financial system to facilitate these transactions
Adequate infrastructure (highways, bridges, airports, etc) usually provided by government
Political stability
Public policy supporting economic growth (for ex., investment in capital can be stimulated by tax credits)

8. How fast can the US GDP grow without causing inflation?
Sustainable noninflationary annual GDP growth rate about 2 to 3% in the U.S.