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

2. 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

3. 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?

4. 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

5. 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?

6. 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

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

8. 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

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

10. 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

11. 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.

12. 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.