Growth and the Business Cycle

Growth and the Growth and the Business CycleBusiness Cycle

Chapter 8Chapter 8

Time period: 1 weekTime period: 1 week

Growth as a GoalGrowth as a Goal

Two definitionsTwo definitions 1. the increase in GDPr over time1. the increase in GDPr over time 2. the increase in GDPr per capita over 2. the increase in GDPr per capita over

timetimeBetter to compare standard of livingBetter to compare standard of living

Example: China’s GDP is $744 billionExample: China’s GDP is $744 billion

Denmark’s is $155 billionDenmark’s is $155 billion

--China’s per capita --China’s per capita GDP is $620GDP is $620

--Denmark's per --Denmark's per capita GDP is capita GDP is $29,890 $29,890

Growth as a GoalGrowth as a Goal

Important because it means more material Important because it means more material abundance and ability to meet the abundance and ability to meet the economizing problemeconomizing problem Growth lessens the burden of Growth lessens the burden of scarcityscarcity

Rule of 70 (doubling time)Rule of 70 (doubling time)

Approximate # of years to double the real Approximate # of years to double the real GDP = 70 / annual % rate of growthGDP = 70 / annual % rate of growth Examples: with a growth of 2% annually it Examples: with a growth of 2% annually it

would take 35 years for GDP to doublewould take 35 years for GDP to double With a growth of 4% annually it would only take With a growth of 4% annually it would only take

18 years for GDP to double18 years for GDP to double The US has a $10 trillion dollar GDP with a The US has a $10 trillion dollar GDP with a

growth rate of 3%growth rate of 3%How long will it take to double?How long will it take to double?

23.3 years23.3 years

China has a GDP of $744 billion with a 9% China has a GDP of $744 billion with a 9% growth rategrowth rate How long will it take for China to have a GDP How long will it take for China to have a GDP

of a trillion and a half?of a trillion and a half?7.7 years!7.7 years!

Main Sources of GrowthMain Sources of Growth

1. increasing inputs1. increasing inputs About 1/3 of the US growthAbout 1/3 of the US growth

2. increasing productivity of existing 2. increasing productivity of existing inputsinputs About 2/3 of the US growthAbout 2/3 of the US growth

Growth record of the USGrowth record of the US

Rate of growth record shows that real Rate of growth record shows that real GDP has grown 3.1% per year since 1950 GDP has grown 3.1% per year since 1950 and real per capita GDP has grown at and real per capita GDP has grown at about 2% each yearabout 2% each year Remember growth doesn’t measure Remember growth doesn’t measure

Quality improvementsQuality improvements

Increased leisure timeIncreased leisure time

Adverse effects on the environmentAdverse effects on the environment