Development and economy
What’s the goal of economic agents?
3types of agents: households, firms and governments.
For households: Higher economic growth leads to higher wages (if correctly distributed) which leads to higher consumption. So economic growth for households is a way to increase their consumption.
Firms aim at doing high profits, and higher economic growth leads to higher profits.
For the government, a high growth helps to reduce or cut down fiscal debt because it allows government to increase taxes or to reduce expenses.
Usually growth is seen as the solution for our problems: for a developed country it will allow to reduce/lower unemployment or to balance budget. For developing countries it may allow to reduce poverty and increase the welfare (depends on consumption).
Usually growth is a cumulative process, growth calls for growth.
There are 2 main measures for growth : * Real GDP : allows to eliminate the price effect ( inflation) on growth
Real GDP = Nominal GDP – Prices because Real growth rate = Nominal growth rate – Inflation * GDP/ capita : used to see the real wealth of a country per inhabitant bc the GDP of China is far more higher than the GDP of Luxembourg but the GDP/capital is larger in Luxembourg than in China allows to eradicate the size effect.
A MADDISON, studied many indicators of growth and he found that real economic growth in Africa was about 2.74% / year whereas the population growth (n) was about 2.73% : the real growth/capita was almost 0%. So you have to compare the progression of growth to the pace of progression of the population.
1) The main phases of World Economic Growth ( WEG)
“During the last thousand years population was multiplied by 13, GDP/capita by 22 and GDP by 300.”
Why 13x22 isn’t equal to 300, whereas it should be ? Because an approximation by log is used. When analyzing macroeconomic figures, you should be very careful because