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  Unit One: Overview | Introducing Growth & GDP | Per Capita Income | Distribution of Income | Growth & Policy


  Introducing Growth and GDP


  Introduction

  As economist Jeffrey Sachs points out (see Episode Three: Chapter 18: The Global Divide), the world today is more unequal than at any time in human history. To date, only a tiny proportion of the global population has achieved modern economic growth or realized its benefits. This video clip (2:33) provides context for lessons about economic growth by raising two questions about the modern global market economy:
  • Does the system deliver the goods?
  • Does the system distribute benefits widely?

Economists answer the first question by assessing economic growth -- the increase in economic value created through production and trade.

One measure of growth that economists consider is product, the total value paid for all the goods and services produced in the factories, on the farms, by the service workers, and by all the rest of the participants in a national economy.

But product alone doesn't tell the whole story. We must ask also, how large a share of product is available, on average, to individuals as income? This is another way of saying that the size of an economy must be considered in relation to the size of the population it supports. A large economy that supports a large population may furnish only a low income, and a poor standard of living, to the average citizen.

The second question concerns the distribution of economic value. Is economic benefit evenly shared across society, or do small numbers of citizens keep most of the income? Are the assets of production controlled by a small elite, or does everyone have a stake?

Economic literacy involves understanding three important concepts related to economic growth and distribution ( gross domestic product, per capita income, and the distribution of income) and their relationships to each other and to policy.



  Exercise: Compare National Economic Performance as Reflected in GDP Growth

 
GDP in $US billions (1990)199119951999
Brazil   469.8  540.9  579.2
Chile     32.7    46.0    54.2
China   424.3  675.3  923.8
Mexico   273.8  283.4  345.7
Sweden   227.1  236.3  260.5
Tanzania       4.4      4.7      5.1
United States 5,775.96,526.47,678.7
Data: U.S. Department of Energy (http://www.eia.doe.gov/emeu/iea/tableb2.html)

  Compare economic performance using GDP growth

  This table provides GDP data for seven nations. Using this information, we can compare the countries' economic performance. One way to compare is to calculate the growth rate, or the percentage increase in GDP from one year to another.

  1. First, calculate absolute growth in GDP. Absolute growth is the difference in GDP at a later date from GDP at an earlier date. Calculate absolute growth by subtracting GDP value in 1991 from GDP value in 1999.

    Example: Brazil:579.2 - 469.8 = 109.4

  2. Next, calculate the rate of growth: Divide absolute growth by the value of GDP in the earlier year. Expressed as a percentage, the result equals the size of the increase in GDP relative to the value of GDP in the starting year.

    Example: Brazil: Absolute Growth = 109.4
      GDP in starting year (1991) = 469.8
      Rate of Growth = 109.4 / 469.8 = 0.2329, or 23 percent
     "Brazil's GDP grew by 23 percent from 1991 to 1999."


  Try this:

  Caclulate the absolute growth in GDP and the rate of growth for each of these countries. Write out a sentence expressing the rate of GDP growth for each, and then answer the questions below.

 Absolute GDP Growth
($US billions):
1991-1999
Rate of GDP Growth:
1991- 1999
Brazil   109.4  23%
Chile          
China          
Mexico          
Sweden          
Tanzania          
United States          


  1. Which nation had the strongest rate of GDP growth between 1991 and 1999?

  2. Which nation had the largest absolute growth in GDP between 1991 and 1999?

  3. Could growth rate ever be a negative number? How could this happen? What would a negative "growth rate" mean?



  Answer Key


  Unit One: Overview | Introducing Growth & GDP | Per Capita Income | Distribution of Income | Growth & Policy


 
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