<P> An increase in output, or economic growth, can only occur because of an increase in the capital stock, a larger population, or technological advancements that lead to higher productivity (total factor productivity). An increase in the savings rate leads to a temporary increase as the economy creates more capital, which adds to output . However, eventually the depreciation rate will limit the expansion of capital: savings will be used up replacing depreciated capital, and no savings will remain to pay for an additional expansion in capital . Solow's model suggests that economic growth in terms of output per capita depends solely on technological advances that enhance productivity . </P> <P> In the 1980s and 1990s endogenous growth theory arose to challenge neoclassical growth theory . This group of models explains economic growth through other factors, such as increasing returns to scale for capital and learning - by - doing, that are endogenously determined instead of the exogenous technological improvement used to explain growth in Solow's model . </P> <P> Macroeconomic policy is usually implemented through two sets of tools: fiscal and monetary policy . Both forms of policy are used to stabilize the economy, which can mean boosting the economy to the level of GDP consistent with full employment . Macroeconomic policy focuses on limiting the effects of the business cycle to achieve the economic goals of price stability, full employment, and growth . </P> <P> Central banks implement monetary policy by controlling the money supply through several mechanisms . Typically, central banks take action by issuing money to buy bonds (or other assets), which boosts the supply of money and lowers interest rates, or, in the case of contractionary monetary policy, banks sell bonds and take money out of circulation . Usually policy is not implemented by directly targeting the supply of money . </P>

What are the two broad types of economic policy