This chapter analyzes economic growth by examining the aggregate production function. Sources of economic growth are identified and growth rates of different countries are compared.
The Significance of Economic Growth
- Define economic growth and explain it using the production possibilities model and the concept of potential output.
- State the rule of 72 and use it to show how even small differences in growth rates can have major effects on a country's potential output over time.
- Calculate the percentage rate of growth of output per capita.
To demonstrate the impact of economic growth on living standards of a nation, we must start with a clear definition of economic growth and then study its impact over time. We will also see how population growth affects the relationship between economic growth and the standard of living an economy is able to achieve.