Chapter 28 _ Economic Growth _ ECON 2020.pdf - \u201cThis chapter investigates the causes of economic growth what institutional structures appear to

Chapter 28 _ Economic Growth _ ECON 2020.pdf - “This...

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“This chapter investigates the causes of economic growth, what institutional structures appear to promote economic growth, and the controversies surrounding the benefits and costs of economic growth. As you will see, economic growth has been perhaps the most revolutionary and powerful force in history. Consequently, no study of economics is complete without a thorough understanding of the causes and consequences of economic growth.” 28.1 [Economic Growth]: List two ways that economic growth is measured. Economists define and measure economic growth as either: An increase in real GDP occurring over some time period or An increase in real GDP per capita occurring over some time period. With either definition, economic growth is calculated as a percentage rate of growth per quarter (3-months) or per year. Take for example if real GDP was 5 in 2014 and real gdp was 7 in 2015, the economic growth rate for 2015 would be calculated in: (7-5)/5 * 100. Real GDP per capita is just calculated by dividing real GDP by the population and calculating the growth rate would also be the same. For measuring expansion of military potential or political preeminence, the growth of real GDP is more useful. Unless specified otherwise, growth rates reported in the news and by international agencies use this definition of economic growth.For comparing living standards, however, the second definition is superior. While China’s GDP in 2015 was $10,983 billion compared with Denmark’s $295 billion, Denmark’s real GDP per capita was $64,186 compared with China’s strikingly lower $8,211. And in some cases real GDP growth statistics can be misleading, even when accurate. The African nation of Eritrea had real GDP growth of 1.3 percent per year from 2000–2008. But over the same period its annual growth of population was 3.8 percent, resulting in a decline in real GDP per capita of roughly 2.5 percent per year. Growth is a widely held economic goal, the expansion of total output relative to population results in rising real wages and incomes and thus higher living standards. Growth lessens the burden of scarcity. What has been the rate of U.S. growth? Real GDP grew at an annual rate of about 3.1 percent between 1950 and 2015. Real GDP per capita increased at roughly 2.0 percent per year over that time. But we must qualify these raw numbers in several ways: Improved products and services. Since the numbers in Table 28.1 do not fully account for improvements in products and services, they understate the growth of economic well-being. Such purely quantitative data do not fully compare an era of vacuum tube computers and low-efficiency V8 hot rods with an era of digital cell phone networks and fuel-sipping, hybrid-drive vehicles. Added leisure. The increases in real GDP and per capita GDP identified in Table 28.1 were accomplished despite increases in leisure. The average workweek, once 50 hours, is now about 35 hours (excluding overtime hours). Again the raw growth numbers understate the gain in economic well-being.
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