8.1 Economic Growth

What are the two main ways economists measure economic growth?

1. Increase in real GDP over time

2. Increase in real GDP per capita over time

How is economic growth typically expressed?

As a percentage rate of growth per quarter or per year.

What is the formula for calculating real GDP per capita?

Real GDP per capita = Real GDP ÷ Population

Why is real GDP a better measure for military or political power?

Because it reflects the total economic output, which relates to national capacity.

Why is real GDP per capita better for comparing living standards?

It accounts for population size and reflects average output per person.

What was the U.S. real GDP growth rate in 2021?

5.7%, due to recovery from the 2020 COVID-19 recession.

What was the U.S. real GDP per capita growth rate in 2021?

5.4%

What does the Rule of 70 estimate?

The number of years required for a measure (like GDP) to double.
Formula: 70 ÷ annual growth rate

Using the Rule of 70, how long to double GDP at 3% growth?

About 23 years (70 ÷ 3)

What does a small change in growth rate mean for output?

It can lead to large differences in total output over time

What misleading example shows the limits of GDP growth stats?

Eritrea had 1.3% GDP growth but 3.8% population growth, leading to a 2.5% decline in GDP per capita.

What are three reasons GDP growth may understate or overstate well-being?

1. Improved products/services not captured

2. Increased leisure time

3. Environmental and quality-of-life impacts

How much did U.S. real GDP increase from 1950 to 2021?

More than eightfold

How much did U.S. real GDP per capita increase from 1950 to 2021?

Nearly fourfold.

What were the average annual growth rates in the U.S. since 1950?

• Real GDP: ~3.0%

• Real GDP per capita: ~1.9%