Economic Growth is:


MEASURING ECONOMIC GROWTH

The most common measure of economic growth is Gross Domestic Product (GDP).

GDP -

Real GDP -

Per Capita GDP -

Per Capita Real GDP -

The best data to use to measure a country's standard of living is probably per capita real GDP (because it measures how much "stuff" we have per person without the influence of inflation).


GDP and related data - from the Bureau of Economic Analysis (BEA)

Overview of the U.S. economy - from the Bureau of Economic Analysis (BEA)

GDP Deflator





Quarterly Change in GDP




LIMITATIONS OF USING GDP AS A MEASUREMENT OF OUR STANDARD OF LIVING

Virtually all data have limitations. GDP data (nominal, real, and per capita) are not perfect measures of our standard of living. Some of the limitations we should be aware of include:

1. GDP measures the output produced and sold in (legal) markets. It does not include productive activity which does not have a market transaction.
Activities INCLUDED In Gross Domestic Product (GDP) Activities NOT INCLUDED In Gross Domestic Product (GDP)
Hiring a lawn service to mow your yard. Mowing the lawn yourself.
Taking your children to a day-care center. Caring for your children yourself.
Hiring a plumber to fix a water leak at your house. Fixing the water leak yourself.
Prostitution in Nevada (where it is legal). Prostitution is the rest of the U.S. (where it is illegal).



2. GDP measures how much "stuff" we produce. It is not clear how much some "stuff" contributes to the quality of our lives.

For example, people who live in urban areas spend a portion of their incomes on products and services to help them cope with urban problems. (Urban residents buy more alarm systems for their homes and cars, self-defense classes, and stress medication.) Some economists refer to these items as "bads" rather than "goods".

EXAMPLE

3. GDP does not measure the quality of the environment.





4. GDP does not include how much leisure contributes to our standard of living.



Regardless of these limitations, if you are trying to measure standard of living, per capita real GDP is probably the best data to use.


IMPORTANT TERMS & CONCEPTS

Gross Domestic Product (GDP)

Gross National Product (GNP)

Per Capita GDP

Per Capita Real GDP

Real GDP


WHY WE SHOULD CARE ABOUT ECONOMIC GROWTH

Would you want to trade places with the average resident of most African countries?

Why not?

Your answer probably has something to do with standard of living.

In 1994, per capita real GDP (measured in 1987 U.S. $) was:

United States $20,500
Botswana $1,784
Namibia $1,575
Swaziland $768

Source: Human Development Report 1997. Published for the United Nations Development Programme. New York: Oxford University Press, 1997.

Why is the difference so significant? Over the last 200 years, the economy is the United States has grown significantly faster than in Africa. Consequently, we have a higher standard of living (as measured by per capita real GDP).

If we want to continue to improve our standard of living, we need economic growth.


Economic growth is one of our macroeconomic objectives.

Macroeconomic policy goals include:


E-mail Dr. Buck with your questions or comments.

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