Final answer:
Economic growth is typically contingent on the increase in output of goods and services, improvements in productivity through capital investments and technology, and a supportive legal framework for property and contract rights. Yet, the assumption of limitless growth is challenged by the finite nature of physical resources, requiring a transition to sustainable models of economics.
Step-by-step explanation:
Most economists accept the idea that economic growth is not likely to occur unless there is an increase in the country's output of goods and services over time. The expansion of the circular flow diagram is indicative of more products being available for commerce and is backed by a workforce that is employed and spending money. However, if job security is threatened or if people are hesitant about the future, consumption drops, adversely affecting the economic activity and causing contraction.
The foundation of economic growth, as agreed upon by many economists, is based on improvements in productivity. This is actively supported by investments in human and physical capital, as well as technology, within a market-driven economy. High-income countries focus on policies that drive this growth through education, technology, and infrastructure investments, maintaining low and stable inflation, and encouraging competition, both domestically and internationally.
It's also essential for a society to create a legal framework that supports property rights and contractual agreements, as these underpin the ability to conduct business and facilitate the increase in the standard of living, a key indicator of economic growth. Meanwhile, the notion of perpetual economic growth is challenged by the realization that physical and resource constraints present real limits, necessitating a shift to sustainable economic models.