what is economic growth?. for most of human history, life was, as philosopher thomas hobbes said,...
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What is economic growth?
What is economic growth?
For most of human history, life was, as philosopher Thomas Hobbes said, “nasty, brutish and short.”
What is economic growth?
Before 1750, the norm was chronic hunger, malnutrition, and disease.Even the wealthy had poor diets. Life expectancy was age 30. An average British man in 1750 grew to a height of 5’6 and weighed just 130 pounds.
What is economic growth?
No one had ovens, dishwashers, microwaves, or sinks. They didn’t even have indoor kitchens.No electricity. No heat or air conditioning. No lights. No plumbing. No phones. No computers.
What is economic growth?
Economic growth is what changed that. In the past 250 years, people ate more and better, grew bigger, worked fewer hours, and lived in greater safety and comfort.
What is economic growth?
How did this happen?Technology
What is economic growth?
How did this happen?TechnologySpecialization of labor
What is economic growth?
How did this happen?TechnologySpecialization of laborHuman capital
What is economic growth?
All of these led to greater productivity – in other words, we could make more with the same resources.
What is economic growth?
Think of just the 20th Century… Airplane Penicillin DNA Computers Nuclear energy Cell phones Internet
What is economic growth?
Which one do we mean when we talk about growth? Increases in nominal GDP Increases in real GDP Increases in real per capita GDP
What is economic growth?
We can illustrate economic growth: Production possibilities curve AD/AS Model Business Cycle
Production possibilities curve
Capital goods
Consumer goods
New resources move the PPF outward, meaning the economy can have more of both goods.
Aggregate Demand & Supply Model
Price Level
Real GDP
AS1
AD1
AS2
AD2
Increases in AS and AD cause GDP to go up without inflation.
Business cycle
peak
peak
trough
expansion
recoverycontraction
Long-termupwardtrendisgrowth
What does growth mean to you?
Rule of 72
The Rule of 72 lets you calculate the time it takes for something to double.
It can be an investment or the GDP.If the growth rate is x%,Then 72/x is the time it takes to
double.
Rule of 72
If you have $500 in the bank earning 3% interest, how long until you have $1,000?
Rule of 72
If you have $500 in the bank earning 3% interest, how long until you have $1,000?
72/3 = 24It will take 24 years
Rule of 72
If you have $100 in the bank earning 10% interest, how long until you have $200?
Rule of 72
If you have $100 in the bank earning 10% interest, how long until you have $200?
72/10 = 7.27.2 years
Rule of 72
If an economy is growing at a rate of 1%, how long until GDP doubles?
Rule of 72
If an economy is growing at a rate of 1%, how long until GDP doubles?
72 years
Rule of 72
If an economy is growing at a rate of 2%, how long until GDP doubles?
Rule of 72
If an economy is growing at a rate of 2%, how long until GDP doubles?
36 years
Rule of 72
You can see the importance of having a higher growth rate.
In one year, the difference may seem minimal.
Over time, it is huge.
Visual image of growth
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