Growth and the Business Cycle Krugman Section 1 Module 2

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

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

Rule of 70 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 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 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% The US has a $10 trillion dollar GDP with a growth rate of 3% How long will it take to double? 23.3 years 23.3 years

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? How long will it take for China to have a GDP of a trillion and a half? 7.7 years! Is economic growth ever too fast? Why? Photos

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