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Questions and Answers
What is the average GDP per capita estimated in 2014?
14,517
What was the estimated GDP per capita in year 1 in 2015 dollars?
700–1,000
What is the estimated percentage of the world’s population living on less than $3 per day?
In 2009, what was the growth rate of real GDP per capita calculated from the given data?
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Poverty is considered normal while wealth is unusual according to the distribution of world income.
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The average GDP per capita in 2014 was $______.
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What does economic growth build upon over time?
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What primary data source was mentioned for measuring growth?
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Study Notes
Introduction to Economic Growth
- Economic growth enhances societal well-being and is correlated with increased wealth.
- Wealthier nations experience higher infant survival rates, life expectancy, and nutrition.
- Access to educational opportunities, leisure, and entertainment improves in wealthier countries.
- Economically advanced nations tend to have lower instances of civil conflicts.
Key Facts About Economic Growth
- GDP per capita shows significant variation among countries.
- Historically, poverty was the norm, and wealth was rare.
- Nations experience differing economic fates: growth miracles and disasters.
GDP Variation and Poverty
- Most of the world lives in poverty, with around one billion individuals earning less than $3 daily.
- Approximately 70% of the global population resides in countries with a GDP per capita at or below $12,472 (similar to China's economic level).
- About 73% of people live in nations where GDP per capita is below the global average, which was $14,517 in 2014.
Historical Perspective on Income Distribution
- In year 1 (est. $700–$1,000 in 2015 dollars), all major world regions faced similar income levels.
- Over most of human history, real per capita GDP showed no long-term growth.
- Presently, GDP per capita is 50 times higher in affluent countries compared to the poorest.
Measuring Economic Growth
- Economic growth is defined as the rate of change in real GDP per capita, calculated using the formula:
- ( g_t = \frac{y_t - y_{t-1}}{y_{t-1}} \times 100 )
- Consistent low growth can lead to significant wealth differences due to compounding effects.
Example Calculation of Growth Rate
- Using real GDP per capita data from 2008 ($15,000) to 2009 ($15,500):
- Growth rate ( g_{2009} = \frac{15,500 - 15,000}{15,000} \times 100 = 3.3% )
Application of Growth Rate Formula
- Example self-check shows real GDP per capita increased from $22,000 to $23,000 between Year 1 and Year 2.
- The calculated growth rate is approximately 4.55%, determined by:
- (\frac{(23,000 - 22,000)}{22,000} \times 100)
Conclusion on Economic Growth
- Continuous economic growth, even when slow, underscores the potential for compounding wealth over time.
- Understanding growth metrics is crucial for evaluating and predicting economic performance across different nations.
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Description
This quiz covers Chapter 25 of Modern Principles of Economics, focusing on the concepts of economic growth as discussed in 'The Wealth of Nations'. Key topics include the Solow model and its implications on economic progress. Prepare to explore the intricate relationship between wealth and growth as outlined by Adam Smith.
