Chapter7 - Chapter 7 Measuring Progress A visitor to India...

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1 Chapter 7: Measuring Progress A visitor to India is immediately struck by two things, extreme poverty and high economic growth. Poverty in India is obvious, eighty percent of India’s population lives on less than $2 a day. But India’s growing wealth is also obvious: access to clean water is increasing, illiteracy is falling, and hunger is slowly abating. In the cities, there are more restaurants, more clothing shops, more factories, and more cars. As a rough way of summarizing these changes in economic output and the standard of living economists look to a country’s gross domestic product (GDP) and its gross domestic product per capita. Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a year. GDP per capita is GDP divided by a country’s population. Table 7.* lists the 15 countries with the largest GDP in 2005 it also shows the GDP per capita for these countries. In the United States, where GDP was $10.205 trillion and the population was 292.6 million, GDP per capita was $34,875 in 2003. But although China is the world’s second largest economy with a 2003 GDP of $6.4 trillion it has a population of 1.3 billion people, so per capita GDP is only $4,970, a little bit more than in El Salvador ($4,751) or Guatemala ($3,805). Similarly, India has the world’s 3rd largest economy but after China it has the world’s second largest population so GDP per capita is only $2,990. _____________________________________________________________________________________________________ Table 7.* GDP Measures Three Key Economic Conditions 1. Living Standards GDP is used to compare living standards in different countries 2. Economic Growth GDP is used to determine changes in living standards over time. 3. Business Cycles GDP used to determine economic expansions and contractions (recessions). _____________________________________________________________________
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India is a very poor country but recent economic growth has raised per capita Indian GDP dramatically. India is producing many more goods and services today than just a few years ago and as a result the standard of living in India is increasing. Figure 7.* shows real GDP per capita for the ten‐year period 1994‐2003. Over this time period, India’s real per capita GDP grew at an average rate of 4.49% a year. If this rate continues India’s GDP per capita will double in less than 16 years. Indeed, in the ten years preceding 2003, the real income of the average person in India increased from about $2,000 to almost $3,000; a fifty percent increase in just ten years. Table 7.* The 15 Largest Countries Ranked by GDP in 2003 Rank Country GDP (Billions of US Dollars) GDP Per Capita (in U.S. Dollars) 1 United States $10,205 $34,875 2 China 6,396 4,970 3 India 3,139 2,990 4 Japan 3,070 24,036 5 Germany 2,080 25,188 6 Russia 1,703 11,788 7 United Kingdom 1,544 26,045 8 France 1,540 25,663 9 Italy 1,329 22,924 10 Brazil 1,312 7,204 11 Indonesia
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Chapter7 - Chapter 7 Measuring Progress A visitor to India...

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