Economics Chapter 22 Study Guide

Economics Chapter 22 Study Guide - Economics Chapter 22...

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Economics Chapter 22 Study Guide 1) Introduction a) Real GDP per capita is the best measure we have of a country’s standard of living because GDP measures a country’s total income. b) Economic growth occurs when real GDP per capita increases. 2) Economic Growth Over Time and Around the World a) It is only through economic growth that the standards of living increase. b) Economic Growth from 1,000,000 B.C. to the Present i) No sustained economic growth occurred between 1,000,000 B.C. and 1300 A.D ii) Significant economic growth did not begin until the Industrial Revolution , which was the application of mechanical power to the production of goods, beginning in England around 1750. c) Making the Connection (Why was England First?) i) Had the most efficient markets. d) Small Differences in Growth Rates Are Important i) Over long periods small differences in growth rates can have a large impact. (1) Ex: The difference between a 1.3% and 2.3% interest rate is large when the amount of money is large. ii) The process, known as compounding, magnifies even small differences in interest rates of long periods of times. (1) Ex: Over a period of 50 years, your $100 would grow to $312 at an interest rate of 2.3% but to only $191 at an interest rate of 1.3% iii) This also applies to growth rates. iv) In the long run, small differences n economic growth rates result in big differences in living standards. e) Don’t Let this Happen to You!! i) When economists talk about growth rates over a period of more than one ear, the numbers are always average annual percentage changes and not total percentage changes. (1) Ex: Real GDP was $1,777 billion in 1950 and $10,756 billion in 2004. The % change in real GDP between these two years is: ($10,756-%1,777)/ $1,777 (a) THIS IS NOT THE GROWTH RATE (2) The growth rate between these two years is the rate at which $1,777 in 1950 would have to grow on average each year to end up as 10,842 billion in 2004 which is 3.4% f) Why Do Growth Rates Matter? i) Growth rates matter because an economy that grows too slowly fails to raise living standards. ii) Countries that experience slow growth have also missed an opportunity to improve the lives of their citizens. g) Making the Connection (The Benefits of an Earlier Start: Standards of Living in China and Japan) i) If rapid economic growth continues in China, its standard of living will begin
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to approach those in the United States and Japan. h) “The Rich Get Richer and…” i) There are high-income countries, newly industrializing countries and developing countries. ii) GDP per capita is measured in U.S dollars corrected for differences across countries in the cost of living. 3) What Determines How Fast Economies Grow? a)
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This note was uploaded on 04/09/2008 for the course ECON 001 taught by Professor Caseyquinn during the Spring '08 term at Lehigh University .

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Economics Chapter 22 Study Guide - Economics Chapter 22...

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