Economic Growth

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The Rule of 70

70 / Annual Growth Rate = # of Years to Double This is a quick estimation to calculate the length of time to double.

What is wrong with GDP per capita?

1. It doesn't measure fairness of distribution in income 2. It doesn't measure non-market transactions or non-monetary goods 3. Production and consumption of undesirable items increase GDP 4. GDP doesn't measure pollution generated or account for natural resources consumed

GDP Growth Rate

Current RGDP - Previous RGDP / Previous RGDP x 100

What is standard of living?

Economist used standard of living to measure a country's economic well being or general welfare. GDP is used to measure a country's standard of living when looking at a nation's income.

Why do we use GDP per capita?

GDP per capita is correlated with other better measures of well being. So it is used as an aggregate measure or a general indicator that sums the information from all the other better measures.

Determinants of Growth

If real GDP grows faster than population, it leads to an INCREASE in standard of living. If population grows faster than real GDP, it leads to a DECREASE in standard of living.

What affects growth of RGDP?

Productivity RGDP per capita depends on: 1. Labor Productivity 2. Share of Population Working

Real GDP Per Capita

Real GDP per capita is a measure of the average income per person. RGDP / Population When examining a country's standard of living, real GDP per capita is considered a better measure than just real GDP.

Labor Productivity

The amount of goods or services produced by a typical worker in a typical hour of labor. To increase labor productivity, we need to invest more in physical capital (K) and human capital (H).


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