Prepared by Ali Güneş, Zirve University Facts to be Explained Economic Growth David Weil Chapter 1 Prepared by Ali Güneş, Zirve University

Some facts… 7 billion people inhabit the earth 925 million do not have enough food 884 million do not have safe water Life expectancy at birth: 76 years for highly developed countries 69 years for medium developed countries 56 years for low developed countries

Why rich and poor? 20% of the world receives 60% of total income 1.1 billion people survive less than one dollar per day 2.6 billion people survive less than two dollars per day Why are some countries rich and others are poor?

Facts over time… Life expectancy in Japan 35 years in 1880 83 years Today Average workweek in USA 61 hours in 1870 34 hours Today

Main question in growth Will the richest countries continue to grow richer? Are the poor countries in poverty trap? Will the gaps between rich and poor close?

GDP Gross domestic product: A measure of the value of all goods and services produced in a country in a year. GDP = consumption + investment + government expenditure + net export GDP = wages + rents + interest + profits

GDP or GDP per capita ? GDP in $ trillions (year 2009) 1) USA 12.62 2) China 10.08 3) Japan 3.81 GDP per capita in $ (year 2009) 1) Qatar 159,469 2) Luxembourg 84,525 11) USA 41,099

Growth Growth rates of income: how quickly their income per capita is rising. Growth rate: g = (GDP(t+1) - GDP(t)) / GDP(t) Rule of 72: Doubling time = 72/g

Growth facts 1.8% annual growth rate of US income over the period 1870-2009 12.3-fold increase in income per capita Growth miracles (USA, Canada, Japan) Growth disasters (Nicaragua, Somalia, Zimbabwe)

Income Inequality Within-country inequality Between-country inequality Which is more important? Person Nationality Income Alfred Country A $5,000 Bob Country B $5,500 Carol $6,000 Doris $6,500

Some definitions Capital: machines, vehicles, buildings, other equipments. Investment: the goods and services devoted to the production of new capital. Productivity: the amount of output produced with each unit of capital. Technology: the available knowledge about how inputs can be combined to produce output.

More definitions… Efficiency: how the available technology and inputs into production are actually used in producing output. Factors of production: inputs used in production (worker, capital) Economic models: simplified representations of reality that can be used to analyze how economic variables are determined.