Chapter 7: Economic Growth and Productivity
1. What is Economic Growth?
● Economic growth is an increase in the production of goods and services in an economy
over time, typically measured by the growth of real GDP.
Real GDP growth = Economic growth
● Indicates rising income, improved standards of living, and increased job opportunities.
2. Measuring Economic Growth
● Real GDP: Measures the value of output adjusted for inflation.
● Real GDP per capita: Real GDP divided by the population.
Better indicator of individual well-being.
3. Rule of 70 (Growth and Doubling Time)
● A formula to estimate how long it takes for an economy (or any variable) to double in
size at a constant growth rate.
Formula:
Doubling Time = 70 / Annual Growth Rate (%)
Example: If real GDP grows at 2% → = 35 years to double
, 4. Determinants of Economic Growth
1. Increases in Quantity and Quality of Resources
● Labor: More workers or better-educated workforce
● Capital: More machinery, tools, infrastructure
● Natural Resources: Access to land, minerals, energy
2. Technological Advancement
● Increases productivity by allowing more output with the same inputs
● Includes innovation, R&D, and improvements in production methods
3. Human Capital
● Education, training, and health of workers
● Higher human capital → more efficient and innovative labor force
4. Physical Capital Accumulation
● Investment in tools, buildings, and machines
● More capital = higher production capabilities
5. Institutional Factors
● Legal systems, property rights, political stability, sound financial systems
● Support innovation, investment, and growth
1. What is Economic Growth?
● Economic growth is an increase in the production of goods and services in an economy
over time, typically measured by the growth of real GDP.
Real GDP growth = Economic growth
● Indicates rising income, improved standards of living, and increased job opportunities.
2. Measuring Economic Growth
● Real GDP: Measures the value of output adjusted for inflation.
● Real GDP per capita: Real GDP divided by the population.
Better indicator of individual well-being.
3. Rule of 70 (Growth and Doubling Time)
● A formula to estimate how long it takes for an economy (or any variable) to double in
size at a constant growth rate.
Formula:
Doubling Time = 70 / Annual Growth Rate (%)
Example: If real GDP grows at 2% → = 35 years to double
, 4. Determinants of Economic Growth
1. Increases in Quantity and Quality of Resources
● Labor: More workers or better-educated workforce
● Capital: More machinery, tools, infrastructure
● Natural Resources: Access to land, minerals, energy
2. Technological Advancement
● Increases productivity by allowing more output with the same inputs
● Includes innovation, R&D, and improvements in production methods
3. Human Capital
● Education, training, and health of workers
● Higher human capital → more efficient and innovative labor force
4. Physical Capital Accumulation
● Investment in tools, buildings, and machines
● More capital = higher production capabilities
5. Institutional Factors
● Legal systems, property rights, political stability, sound financial systems
● Support innovation, investment, and growth
