ECO 2013 (McConnell v21) - Ch8 with graphic.ppt - ECO 2013 Chapter 8 Economic growth ECO 2013 – Chapter 8 I • DEFINITION Economists define economic

# ECO 2013 (McConnell v21) - Ch8 with graphic.ppt - ECO 2013...

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ECO 2013 Chapter 8 Economic growth

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FSW ECO-2013 McConnell V21 nikishin 2 ECO 2013 – Chapter 8 I. DEFINITION Economists define economic growth as either AN INCREASE IN REAL GDP OCCURRING OVER A CERTAIN PERIOD OF TIME, FOR EXAMPLE ONE QUARTER or AN INCREASE IN REAL GDP PER CAPITA OVER A CERTAIN PERIOD OF TIME note: real per capita GDP is found by dividing real GDP by the size of the population
FSW ECO-2013 McConnell V21 nikishin 3 ECO 2013 – Chapter 8 The first definition is used for reporting growth rates The second definition is used when comparing the standard of living [note: because distribution of income is not considered while calculating GDP, the standard of living as manifested by GDP is a "theoretical standard of living". If 95% of income is restricted to 5% of population then the standard of living of the rest 95% of the population is quite different from the "GDP per capita". (See preceding session)]

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FSW ECO-2013 McConnell V21 nikishin 4 ECO 2013 – Chapter 8 II. ECONOMIC GROWTH ENABLES A NATION TO ATTAIN ITS ECONOMIC GOALS MORE READILY. To calculate the approximate years in which GDP will double divide number 70 by the annual percentage of growth Example: at 3% annual growth US GDP will double (70 / 3) in 23 years at 8% annual growth Russia's GDP will double (70/8) in 9 years [note: limitation of GDP as manifestation of the standard of living refers to both countries.]
FSW ECO-2013 McConnell V21 nikishin 5 ECO 2013 – Chapter 8 MODERN ECONOMIC GROWTH Modern economic growth is characterized by sustained and ongoing increases in living standards. Informal date of its start is the invention of steam engine in 1776, and the beginning of Industrial Revolution. Effects of introduction of steam engine included: Shift of manufacturing from manufacturing by hand to mass- production by engines in factories Shift of population from countryside to cities where factories became located Development of long-distance trade (when used in locomotives)

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FSW ECO-2013 McConnell V21 nikishin 6 ECO 2013 – Chapter 8 Effects of modern economic growth: Rapid and sustained increase in standard of living Reduction of time spent working and increase of time for leisure allowing ordinary people to participate in cultural and political life and to pursue educational goals Increased longevity. Average longevity in the Western World was 30 years before Industrial Revolution, today the world-wide average is 71 years. Increased longevity combined with increased leisure time leads to cultural, social, and political changes. [Note: increased longevity leads to problems related to aging population]
FSW ECO-2013 McConnell V21 nikishin 7 ECO 2013 – Chapter 8 DISTRIBUTION OF MODERN ECONOMIC GROWTH Modern economic growth is distributed unevenly The main cause of the vast differences of the effect of modern economic growth on people's standard of living is the different starting date of modern economic growth in various parts of the world.

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