Holt 7525-9 S15_IT

Chapter 14 Economic Growth
The basic economic problem is scarcity. Human wants are unlimited. Resources are limited. The
basic goal in dealing with the problem of scarcity is to produce as much consumer satisfaction as
possible with the limited resources available.
Economic growth is one of the three macroeconomic goals. In the long run, a nation’s success in
dealing with the basic economic problem of scarcity depends on its success in achieving
economic growth. Economic growth will not allow a nation to satisfy all human wants. But
economic growth will help a nation to produce as much consumer satisfaction as possible with
the limited resources available. Chapter 5 defined absolute economic growth as an increase in
Real GDP. This chapter distinguishes between absolute economic growth and per capita
economic growth.
Absolute economic growth – an increase in Real GDP.
If a nation increases its Real GDP over time, then it has achieved absolute economic growth.
Example 1A: The table below shows Real GDP for Country X in 1974 and 2014. Country X has
achieved absolute economic growth. It has increased its Real GDP by 80%, from $100 billion to
$180 billion.
Country X 1974 2014
Real GDP $100,000,000,000 $180,000,000,000
But has Country X achieved per capita economic growth? Per capita means “per person”, so per
capita economic growth means an increase in Real GDP per person (an increase in the standard
of living).
Per capita economic growth – an increase in per capita Real GDP.
Example 1B: The table below shows Real GDP for Country X in 1974 and 2014. The table also
shows the population of Country X in the two years and the per capita Real GDP (Real GDP ÷
population) for each year. Though Country X achieved absolute economic growth, it did not
achieve per capita economic growth. Per capita Real GDP decreased by 10%. Output did not
grow as fast as population, and the standard of living in Country X declined.
Country X 1974 2014
Real GDP $100,000,000,000 $180,000,000,000
Population 25,000,000 50,000,000
Per capita Real GDP $4,000 $3,600
Economic Growth in the World
Most countries have been achieving both absolute economic growth and per capita economic
growth recently. According to the Penn World Tables, 86% of the countries for which data was
available achieved per capita economic growth between 2000 and 2010. 89% of countries for
which data was available achieved per capita economic growth between 1970 and 2010. The six
most populous countries in the world (containing about 50% of the world’s total population) all
achieved per capita economic growth between 1970 and 2010. The countries, and their
percentage increases in per capita Real GDP between 1970 and 2010, are listed on the table on
the next page:
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
14 - 1 Economic Growth