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Understanding Economic Growth and Welfare

Explore the principles of economic growth and its measurement, including the Rule of 72. Learn about the limitations of using growth rates as a measure of social welfare, including income distribution and quality of life considerations. Understand the determinants of growth, including changes in available resources and technology.

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Understanding Economic Growth and Welfare

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  1. Eco 200 – Principles of Macroeconomics Chapter 17: Economic growth

  2. Economic growth • Measured by annual rate of change in: • real GDP • per capita real GDP

  3. Rule of 72 • Rule of 72: • Approximate # of years for a balance to double = 72 / growth rate for the variable

  4. Economic growth and economic welfare • Problems with using economic growth rate as a measure of social welfare: • income distribution

  5. Economic growth and economic welfare • Problems with using economic growth rate as a measure of social welfare: • income distribution • quality of life

  6. Economic growth and economic welfare • Problems with using economic growth rate as a measure of social welfare: • income distribution • quality of life • leisure time

  7. Economic growth and economic welfare • Problems with using economic growth rate as a measure of social welfare: • income distribution • quality of life • leisure time • externalities

  8. Determinants of growth • changes in the quantity and quality of available resources

  9. Determinants of growth • changes in the quantity and quality of available resources • changes in technology

  10. Economic growth • Economic growth = growth rate of TFP + growth rate of resources

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