Measuring Economic Growth Using GDP GDP and Population

Measuring Economic Growth Using GDP

GDP and Population Growth �The goal is for GDP to rise faster than population. Why? —because this means the amount person is continuing to go up. �To determine what each person gets we measure real GDP per capita--(GDP/total population) �Real GDP per Capita is the best measure of the standard of living.

GDP and Quality of Life �GDP cannot accurately measure quality of life. �While it does measure average output is says NOTHING about the distribution of output. �Very often a few people control a large majority of the output.

Capital Deepening �Labor productivity is the amount of output person �The more physical capital available, the more output possible—we call this capital deepening. �Capital deepening leads to economic growth. �We get growth in human capital through education and training. �Increased capital (both physical and human) lead to increased wages and labor demand (Fig. 12. 13)

Saving and Investment �Saving: income not used for consumption (money available that you don’t spend) �Savings Rate: the portion of disposable income that is saved. �Disposable income that is not spent and therefore saved, is now available for banks to loan out.

Saving and Investment Continued… �Businesses borrow that money to make investments (capital deepening) �Higher savings Higher Investments Higher capita per worker Rising GDP �The United States is AWFUL at saving: �http: //www. gfmag. com/tools/globaldatabase/economic-data/10396 -household-savingrates. html

Population, Government, and Trade �Population �If the population grows but the supply of capital remains steady there will be a lower standard of living. Why? —More people sharing the same amount of output. �If a nation has low population growth and expanding capital stock will see a rise in the standard of living. Why? —Less/the same amount of people sharing more stuff.

Population, Government, and Trade Cont… �Government �Govt. raises taxes people save less available for investment �If govt. uses those tax revenues to reinvest in public goods then investments will increase. Example: roads projects, infrastructure, etc.

Population, Government, and Trade Cont… �Foreign Trade �There is a trade deficit if it imports more than it exports. �A trade deficit could lead to growth IF the imports lead to long term investments rather than short term investments. Example: the financing of the Transcontinental Railroad

Technological Progress �Technological Progress: an increase in efficiency gained by producing more output without using more input. �Tech. advances raise productivity higher output higher GDP per capita higher standard of living.

Technological Progress �Five sources that influence technological progress 1. Scientific Research 2. Innovation 3. Scale of Market 4. Education and Experience 5. Natural Resource Use