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Chapter 22


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Economics 2152A/B
Bruce Hammond

Chapter 22 Economic GrowthThe Basics of Economic Growth The economic growth rate is the annual percentage change of real GDPThe standard of living depends on real GDP per person which is real GDP divided by the populationSustained growth of real GDP per person can transform a poor society into a wealthy oneWe calculate how many years it takes for the level of any variable including real GDP per person to double by using the Rule of 70The Rule of 70 states that the number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth rate of the variable LongTerm Growth TrendsLongterm growth trends are the trends in potential GDPCheck out Figure 222 on p 520 of your textbook to study real GDP per person in Canada between 1926 and 2010During this period real GDP per person grew 20 percent a year on the averageReal GDP growth has been similar in Canada the Europe Big 4 France Germany Italy and the United Kingdom and the United States since 1960 Growth in Japan was very rapid during the 1960s slower during the 1980s and even slower during the 1990s How Potential GDP GrowsPotential GDP increases if there is an increase in population or an increase in labour productivity Consider an increase in population In the figure the labour supply curve shifts rightward from LS to LS the real 01wage decreases and the quantity of labour employed at full employment increases
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