The determinants of economic growth. Policies to encourage growth. In the first lecture we saw small changes in growth have a big impact after a few years, so getting growth right is crucial - maybe the main thing to do. This is a puzzle to be solved. This last is vital, but hard to measure.
Capital is created by new investment.
It includes new products, new processes, but also is probably largely embodied in peoples skill and knowledge. This gives us Figure 10.1. The anser is the supply and demand of capital. Supply is increasing in the interest rate which determines the return to capital. Demand is decreasing through a declining MP K .