Economic Growth

In the broadest sense, economic development might be viewed as “any growth in real income per capita from whatever source”. Bach has described it as “growth in the total output of goods and services in the economy”. Novack has referred to a very old definition of economic growth, according to which it is “con­tinuous substantial increase in per capita consumption of goods and services”.

What is Economic Growth?

• Absolute Real Economic Growth is an increase in Real GDP from one period to the next.
• Per Capita Real Economic Growth is an increase from one period to the next in per capita Real GDP, which is Real GDP divided by population

Do Economic Growth Rates Matter?

• If a country has a 3 percent annual growth rate, Real GDP will take 24 years to double; If a country has a 4 percent annual growth rate, Real GDP will take 18 years to double.

Two Types of Economic Growth:

1. Economic Growth from an Inefficient Level of Production

2. Economic Growth from an Efficient Level of Production


Economic Growth and the Price Level:

• Economic Growth can occur with a falling price level, rising price level, or stable price level.
• In recent decades, the US economy has witnessed economic growth with a rising price level.