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Learn the toughest concepts covered in your Macroeconomics class with step-by-step video tutorials and practice problems.

Introducing Economic Concepts

Introducing Concepts - Economic Growth


Economic Growth

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So let's introduce another key concept here of economic growth. So when we talk about economic growth, we're gonna consider that an economy is growing when the state of the economy, when it's a state of the economy where the output per person, what do you think when the output per person is increasing or decreasing? What do you think? We have? Economic growth? We're growing, right, We have increased, write the output per person is increasing, so where output per person increases. Cool. So this is actually pretty interesting when we think about economic growth through time. So economic growth, why is it important? Well, it's correlated to a higher standard of living. So what you think when we're growing, when the economy is growing, it's a higher standard of living. And we'll see some cool graphs about that in a second. But one interesting topic that comes up pretty often is that throughout most of history, the standard of living was essentially the same. Even though we had these huge empires. When we talk about, you know, roman empires, uh huge chinese empires that happened throughout history. Well up until about the 17 hundreds, we would, we know we've done studies that the standard of living for the average person was essentially the same. Even from ancient times, all the way up through the 17 hundreds. If you were just some sort of farmer or something like that, your standard of living, even if you you were part of this roman empire and it was growing and growing the size of the empire. What we saw is that the output of the empire was growing, But so was the population, because there was more and more people, there wasn't a huge growth of output per person. Right. Per capita is what we say. So when did this change starts to happen? When you guys think there was a big change in the amount of output per person? It was during the Industrial Revolution. So, the Industrial revolution was a key moment in economic history where the the output per person grew dramatically. We started having a lot of machinery that helped us produce products, mostly fabrics and things like that. Um that increased the output per person and actually helped raise the standard of living of a lot of people over time. Ok, so this is where the output began growing faster than the population. Ok, so what might have taken, you know, one person too? So address might have took, you know, I don't know, weeks or a month or something. Now with the machinery, the help of machinery that we're putting out, One person could put out a dress a day or something like that, Right? I don't know so much about the fabric industry, but it was this increase in production because of the help of machinery. So, let's check out some cool graphs of how economic growth has impacted um the standard of living. So, this first one shows us um in the United States, it shows us the availability of certain technologies in the house over time. So notice in 1905, look at the percentage of homes with certain products in 1905, maybe 5% of homes had electricity, you know, 10% with a range for cooking, Very small percentages. And in just 50 years after that, notice when when we talked about the history of economic growth, we're talking about from the beginning of time, all the way up through the 1700s, just about there was very very stable standard of living. And in just 100 years here on this graph from 1905, and 2005, look at the increase in the standard of living, the availability of comforts and luxuries in the home. Right, so notice from 1905 to 1955, if we focus on these blue ones, look at those same technologies that were barely available in 1905, many homes had electricity. Almost every home had electricity range, telephone, automobile huge increases. And not only that these purple technologies didn't exist in 1905, we had new technologies Uh emerge in those 50 years. They had the radio refrigerator washers and dryers and noticed some of these were still not in many homes, right? Just like the air conditioning and washer and dryer. These new technologies that were emerging That by 2005, look how much more. Right, so what we're seeing is that over time we've we've been experiencing a lot of economic growth, not to mention the new technologies that were now available in 2005 as well. Cool. So over time we've seen huge economic growth since the industrial revolution and more and more uh over time, especially in in the past century. So let's go ahead and check out one more graph here related to economic growth. And this is real GDP per capita. So we talked about GDP, right? And this is a measure of production. So measure of the level of production in the economy and per capita means per person, right? Per person. So what we're doing is we're saying for each person, how much output was there and like we said, as the output per person increases, we're talking about economic growth in that situation. And what do we see on this graph? We see a general increase, right? There's a general increase their in our real GDP per capita. And the reason we use real GDP is because we're keeping those prices constant. So we're using the same prices throughout this calculation rather than nominal GDP where those prices change year to year. Okay, so we don't see always economic growth, right? We remember, we've talked about the business cycle and when we talk about the business cycle, we talked about recessions expansions, right? And we see, you know, a very famous recession, the depression that we had in 1929, the Great Depression, we see a decrease there and there was a more recent one in 2008, . We see another little decrease there. And what happened here in the 1940s? That was World War Two, where we saw a big increase in our production while we were producing a lot of military technology and things like that. But in general, what we see is that there has been constant, generally constant economic growth over time in our economy here in the U. S. A. Cool. So we're gonna talk a lot more about economic growth, will go into a lot more detail on a lot of these topics. So this was more of an introduction where we introduced the idea of economic growth and how we define it and saw some cool graphs related to it. Alright, let's take a pause here and let's move on to the next video.