Economic Growth. It Starts Off

¶ … economic growth. It starts off with discussing how growth typically manifests itself in the short and long-run scenarios that come up. Changes in capacity are obvious in the long run but changes in the USE of capacity are more prevalent in the short run. In other words, how capacity is utilized and changes within the production possibilities curve is a short-run concern whereas the overall ability to make products overall would change more in the long-run.

In other words, Apple could change from 500 iPods and 500 MacBooks per run to 400 and 600, respectively. However, in the future, they could make 1000 of each with no problem but they wouldn't be able to do that in the first example. The book also talks about aggregate supply using that prism.

The book then talks about the difference between real and nominal GDP because they are not the same thing. Nominal GDP refers to the current dollar value of output while real GDP looks at quantity. That difference is real. For example, if 100 iPods cost $30,000 right now (300 a pop), the could cost $40,000 in 10 years. The quantity (real GDP) has not changed but the actual dollar value of those same number of iPods has gone up.

The book then talks about growth indexes as a means to measure living standards or other measures. GDP per capita is cited as a common living standard measurement prism. GDP per worker is also important because it shows how productive the actual workforce is because per capita looks at growth per person across the ENTIRE population including the people who don't or can't work.

The book points to growth in productivity coming from labor quality, management, capital investment, and research and development. In other words, Apple could benefit from smarter people coming to work for them, better managers doing the same, investment from stock purchases and such from outside sources as well as people researching how to make better products and how to make them more efficiently.

The government can also improve economic conditions by altering immigration policy, giving businesses incentive to invest, incentive to save, and offering financing options that would not normally be available and/or in the amounts that are normally there. For example, businesses may get a tax credit on new hires like the HIRE Act in 2010 or they may be allowed to bring in more H-1B Visa workers to cover positions that domestic employees can't or won't fill.

Deregulation and simplification of policies and regulations can also be a boon to businesses at times if done properly. However, some say doing this to excess allows or even encourages bad behavior. One example of this is the financial industry which has been regulated, deregulated and re-regulated in many ways. There was a great loosening in the 1980's but there was also the Savings and Loan scandal. The housing crash that occurred in 2007-2009 and is still recovering is another example.

The book also makes mention of whether fast growth all the time is even a good thing, which seems odd to some. However, the massive cycles the economy has taken at times, including the Great Depression, the Great Recession, the 1970's Carter recession that didn't clear up until the early 1980's and even the morass after 9/11 have led to those questions being asked.

1. Check out the Gapminder website at http://www.gapminder.org/. Choose "Gapminder World."

a. Choose a variable from the list of possible y-axis variables that you think might be affected by the rate of a countries economic growth or income per capita. Why did you select this variable? How do you think this variable is affected by economic growth or per capita income?

In clicking on the y-axis, there are a list of variables that spring out on a list. The broader categories include children per woman, CO2 emissions, income per person, child mortality, life expectancy, economy, society, education, energy, environment, health, infrastructure, population and work. The author of this response has a few answers to the question above about how many of those variables are affected by economic growth and per capita income.

One easy-to-see variable that can be described that way is health. The health of a country is certainly affected by economic growth and per capita income as countries that perform better in these regards would be better able to pay for healthcare both at the governmental and consumer level. Countries that suffer in this regard would have a harder time paying for healthcare so the prevailing health of such a nation would tend to be much poorer.

Another example would be infrastructure as many to most road and bridge projects are funded by gas taxes and other taxes and one has to have per capita income levels that are high as well as economic growth to fund those taxes without the rates being high and punitive. Both of these variables were selected on the basis that they are a huge part of what makes a healthy country operate.

b. Select Economic growth over the past 10 years (it is located under "For advanced users") for the x-axis and the variable of your choice from part a for the y-axis. Hit "play" and watch the data move over time. Is there any relationship you can discern between Economic Growth and the variable you chose?