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Understanding Economic Growth and Its Implications

Explore the concept of economic growth, its significance in improving living standards, and the Rule of 70 for estimating doubling time. Learn about the main sources of growth and the US growth record since 1950. Discover how growth impacts productivity, scarcity, and the environment.

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Understanding Economic Growth and Its Implications

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  1. Growth and the Business Cycle Chapter 8 Time period: 1 week

  2. Growth as a Goal • Two definitions • 1. the increase in GDPr over time • 2. the increase in GDPr per capita over time • Better to compare standard of living • Example: China’s GDP is $744 billion Denmark’s is $155 billion --China’s per capita GDP is $620 --Denmark's per capita GDP is $29,890

  3. Growth as a Goal • Important because it means more material abundance and ability to meet the economizing problem • Growth lessens the burden of scarcity

  4. Rule of 70 (doubling time) • Approximate # of years to double the real GDP = 70 / annual % rate of growth • Examples: with a growth of 2% annually it would take 35 years for GDP to double • With a growth of 4% annually it would only take 18 years for GDP to double • The US has a $10 trillion dollar GDP with a growth rate of 3% • How long will it take to double? • 23.3 years

  5. China has a GDP of $744 billion with a 9% growth rate • How long will it take for China to have a GDP of a trillion and a half? • 7.7 years!

  6. Main Sources of Growth • 1. increasing inputs • About 1/3 of the US growth • 2. increasing productivity of existing inputs • About 2/3 of the US growth

  7. Growth record of the US • Rate of growth record shows that real GDP has grown 3.1% per year since 1950 and real per capita GDP has grown at about 2% each year • Remember growth doesn’t measure • Quality improvements • Increased leisure time • Adverse effects on the environment

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