ECON 295 Chapter 26: Chapter 26.docx
9 Jan 2015
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Document Summary
The three variables in the figure (p638), show different aspects of economic growth, a term that economists usually reserve for describing sustained or long-run increases in real gdp. This chapter will discuss real gdp, real per capita gdp (most important) and productivity. Sustained increases in y* (potential gdp) are more powerful method of raising material living standards than the removal of recessionary gaps. Even small differences in annual growth rates can result in large changes in living standards after many years: benefits of economic growth. Because of this, redistribution policies will be needed if poverty is to be reduced. Thankfully, a rapid growth rate makes the redistribution easier: costs of economic growth. Economic growth has real costs: sacrifice of current consumption: growth is often encouraged by increasing investment and saving which requires less consumption. Economic growth, which promises more goods and services tomorrow, is achieved by consuming fewer goods today.
