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Growth and the Business Cycle

Growth and the Business Cycle. Chapter 8 Time period: 1 week. Growth as a Goal. Two definitions 1. the increase in GDPr over time 2. the increase in GDPr per capita over time Better to compare standard of living Example: China’s GDP is $744 billion

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Growth and the Business Cycle

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  1. Growth and the Business Cycle Chapter 8 Time period: 1 week

  2. Growth as a Goal • Two definitions • 1. the increase in GDPr over time • 2. the increase in GDPr per capita over time • Better to compare standard of living • Example: China’s GDP is $744 billion Denmark’s is $155 billion --China’s per capita GDP is $620 --Denmark's per capita GDP is $29,890

  3. Growth as a Goal • Important because it means more material abundance and ability to meet the economizing problem • Growth lessens the burden of scarcity

  4. Rule of 70 (doubling time) • Approximate # of years to double the real GDP = 70 / annual % rate of growth • Examples: with a growth of 2% annually it would take 35 years for GDP to double • With a growth of 4% annually it would only take 18 years for GDP to double • The US has a $10 trillion dollar GDP with a growth rate of 3% • How long will it take to double? • 23.3 years

  5. China has a GDP of $744 billion with a 9% growth rate • How long will it take for China to have a GDP of a trillion and a half? • 7.7 years!

  6. Main Sources of Growth • 1. increasing inputs • About 1/3 of the US growth • 2. increasing productivity of existing inputs • About 2/3 of the US growth

  7. Growth record of the US • Rate of growth record shows that real GDP has grown 3.1% per year since 1950 and real per capita GDP has grown at about 2% each year • Remember growth doesn’t measure • Quality improvements • Increased leisure time • Adverse effects on the environment

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