Okay, Unit 5, Lesson 2, Growth in a Closed Economy, let's discuss this, right? At any given time, we'll continue to use Juan as our example, Juan's ability to  produce output is largely determined by his stock of physical capital, his human  capital, and the state of technology in Solovenia. But as time passes, the level of output in Solovenia can change through a variety of mechanisms. First, the  capital stock in Solovenia can grow over time. 

Juan builds up his capital stock by saving. Since Juan is the only inhabitant, the  amount he saves is equal to the national savings of Solovenia. Remember, one  person, single economy, he saves it all, he produces it all, he consumes it all,  okay? It is the difference between the output, his real GDP, and the amount he  consumes. 

In a real economy, national savings also include the savings of government. We  must add in the government surplus or subtract the government deficit as  appropriate, so the GDP, right, minus the government deficit or the surplus.  Remember, the deficit is, you know, we have too much debt, surplus means we  have more assets than we do debt, so therefore we'll have a surplus. 

So we subtract that out to find the real GDP number. So the more that Juan  saves today, the more he can build up his capital stock and the higher his future  standard of living will be. So we can all relate to that, right? So if we save now,  we'll have more cash or we'll have greater assets in the future to reinvest or  grow for greater leisure purposes, right? So the more we save today, you know,  in theory, the better off our life should be moving forward. 

So if Juan chooses to consume less today, he will have a higher living standard  in the future. If Juan chooses to consume more today, he must accept that this  means less consumption in the future. Economies like individuals can choose  between eating their cake now or saving it for the future. 

In making this decision, Juan weighs the cost of giving up a little bit of  consumption today against the benefit of having a little more consumption in the  future. The higher the marginal product of capital, the more future benefit he  gets from sacrificing consumption today. So we want to make sure as we're  moving forward that our ability to consume or our ability to benefit in the future is worth sacrificing that consumption today, right? So we have to balance that out  and make sure that it's right for us. 

You know, saving is the proper thing in most cases. So we want to have a  surplus into the future. So savings is usually the most beneficial route to go. It just depends on how scarce the resources are. Other things being equal, a 

higher marginal product of capital induces Juan to save more. Juan's choice  also depends on how patient or impatient he is. 

The more patient he is, the more willing he is to give up consumption today to  enjoy more consumption in the future. So again, it's a mind game, right? We  have to, you know, not be so willing to just splurge and be impulsive and say, I  want this now. Let's think about the benefit of the future by sacrificing that utility  or sacrificing that enjoyment now versus, you know, in the future being able to  have a greater stockpile of capital. 

So through the accumulation of physical and human capital and by improving  the components of technology such as knowledge and social infrastructure, the  output in Solovenia will grow over time. The combined effect of physical capital  growth and improvements in technology will allow an economy to grow. You  know, the more we have growth in our physical capital and the quicker our  technology improves will be relative to how speedy or how quick, you know, our  personal economy will grow or our national economy or our regional economy,  you know, based on the improvements of these technologies and the growth  rate of our physical capital. 

So as capital, human capital and technology increase, all of this leads to growth  in output. In general, economies grow because of increases in capital,  technology, human capital and increases in the labor force. Each day Juan, like  you and me, choose how much time to work and how much time to spend in  leisure. 

Other things being equal, we expect that Juan likes to have leisure time like we  do. This is not to say that one never gets any satisfaction from working. But like  most people, even though he enjoys his job, he would prefer to work a little bit  less and play a little bit more. 

He cannot spend all his time in leisure, however. He works because he likes to  consume. The harder he works, the more real GDP he can produce and  consume. 

Juan's decision about how many hours to work each day is determined in large  part by how productive he can be. That is how much real GDP he can produce  for each hour of leisure time that he gives up. So that's a balance that you and I  

as individuals have to come up with a plan that serves us best and how much  should we invest into our work lives and creating GDP for ourselves, our families and our nations.

And then how much of that time that we have in each day do we spend towards  leisure or other maybe worship activities. We need to determine how to balance  that so that we are most effective in our lives, not only in our work life, in our  social life, but also in our spiritual life. So we'll close out the growth and closed  economy with those words. 



Last modified: Monday, September 28, 2026, 8:34 AM