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40 years ago, a typical family had one car, but now many families have two or three. The recent economic growth we take for granted does not apply to all societies.

Real gross domestic product is the total value of final goods and services in a country.

Over time, real GDP per capita grows. Growth rates are used to describe the Gross domestic product per person changes in real GDP per capita. The percentage change from one period to another is what it is. To calculate the growth rate of real GDP from year 1 to year 2, assume it was time and among countries.

Real GDP grew by 4% per year from year 1 to year 2. GDP was times GDP in the first year.

Growth can vary from one year to the next.

The rule of thumb is to understand the power of growth rates. You know the growth rate of real GDP is constant, but you don't know how long it will take until the level of real GDP doubles.

14 years is how long it will take for real GDP to double.

It is difficult to make comparisons of GDP and GNP. Different patterns of consumption and prices can be found in different countries. Two examples can show this point. The price of housing in Japan is higher than in the United States due to the scarcity of land.

Developing countries have different prices than developed countries. Goods that are not traded in developing countries are cheaper than goods that are traded in world markets. In India and Pakistan, hiring a cook or household helpers is less expensive than in the United States.

Taking these differences into account is important. Robert and Alan Heston of the University of Pennsylvania and their team of econo mists have devoted decades to developing methods for measuring real GNP across countries. The team's procedures are based on gathering extensive data on prices of comparable goods in each country and making adjustments for differences in relative prices and consump tion patterns. The World Bank and the International Monetary Fund use these methods.

According to these methods, the country with the highest level of gross national income per capita in the year wasQatar, which had an income per capita of $128,530. Singapore was second at $76,860, while Norway was third at $66,520. The United States had an income of $53,750.

The average annual growth rate of GNI per capita between 1960 and 2011 for 11 countries is shown in Table 8.1. The United States led this group in terms of real expenditures per capita. Mexico and Costa Rica are two typi cal countries. Expenditures per capita in Costa Rica are not as high as in the US. Poor countries have low expenditures. Pakistan has $2,472 in expenditure per person, which is less than 6 percent of the value for the United States.

The Center for International Comparisons at the University of Pennsylvania has a version 8.0.

Expenditures per capita in 1960 were 42 percent of France's.

Japan grew on average 4.03 percent per year, compared to 2.39 percent for France, according to the third column.

The per capita was almost the same as that of France. Remember the rule of 70 to place Japan's growth rate into perspective. In Japan's case, the per capita output doubled every 70 years or 17 years.

Living standards would have increased by a factor of four from the time someone was born to the time they reached the age of 34. The liv ing standard doubles in 14 years with a per capita GDP growth rate of 5 percent per year. doubling would take 70 years with only 1 percent growth.

The differences in per capita incomes between the developed and developing countries are large and can be seen in many different aspects of society. Child labor is an example. In the developed world, we don't like child labor and wonder how we can get rid of it. As coun tries grow, they are less likely to use child labor.

One question economists ask is whether poorer countries can close the GDP per capita gap with richer countries.

The process of narrowing the gap in per capita between richer and poorer countries has been achieved.

There is some evidence provided by two distinguished international econo mists, Maurice Obstfeld of the University of California, Berkeley, and Kenneth Rogoff of Harvard University.

There are different currently developed countries on the graph. The tendency was for countries with lower incomes to grow faster.

From 1870 to 1979 the average growth rate for 16 developed countries was against the level of per capita income. There are points that represent a different country.

The countries with the lowest initial per capita incomes are plotted higher on the graph. The countries with more income per capita had higher growth rates. The countries with higher levels of per capita income in 1870 grew more slowly than countries with lower levels. The tendency was for countries with lower levels of initial income to grow faster and catch up. The United States, France, and the United Kingdom had a tendency for convergence over the last century.

The data in Table 8.1 can be used to compare the countries that are less developed to the advanced industrial countries. The picture is not as clear as it used to be. Pakistan grew at a slower rate than the United States and Mexico and fell behind advanced economies. In Africa, Nigeria grew at less than 1 percent per year, while real expenditures per capita fell in Zambia with its negative growth rate. Weak evidence that poorer countries are closing the gap in per capita income with richer countries is found by economists who studied the process of economic growth in detail.

There has been little convergence in the last 20 years.

Rich countries don't suffer from temperature increases. The economists found that a one-degree Celsius rise in temperature was associated with a 1.2 and 1.9 percentage decline in municipal per capita income. Half of the effect disappears as economies adapt to higher temperatures. The adverse effects of higher temperatures seem to work in international trade.

The effect seems to be concentrated in the agricultural and light manufacturing goods sectors.

Poor countries are not affected by global warming in the same way that rich countries are. Poorer countries may be less affected by global warming trends if global warming can be deferred far into the future. Poor countries are likely to be adversely affected by global warming.

Some useful insights were provided by Jones and Olken.

The group trying to increase immunizations was persuaded by the Massachusetts Institute of Technology. The poor have made it more difficult to do things that are good in the long run. After each shot, the parents would receive dal, a common Indian food. They received a set of cooking pans when they completed the entire sequence of shots. The success rate for immunizations was increased by the incentives.

Since the benefits of immunization for the health of the popula, economists are very high, the costs of this plan could be justified using controlled experiments to find out which policies economic grounds are.

Chapter 3 is "Was there incentives Affairs?"

China and India, the two most populous countries, grew very quickly.

The good news is that living conditions for many people around the globe have improved in the last 20 years.

The commentators are not as sanguine. Those nations and economies that were relatively rich at the start of the century have seen their wealth and prosperity explode. The nations and economies that were poor have grown richer. The gap between rich and poor economies has grown over time.

This relative gulf is larger than it has ever been, or at least larger than it has ever been since some tribes discovered how to use fire.

The research on this issue has not been conclusive. As a country grows, inequality can increase or decrease.

Explain how capital contributes to economic growth.

We studied the effects of an increase in capital in a full-employment economy. We assume the supply of labor is not affected by real wages and draw a vertical line. The production function is shifted upward by an increase in capital because more output can be produced from the same amount of labor.

The increase in capital raises the demand for labor and increases real wages. Firms will bid up real wages in the economy as they increase their demand and compete for a fixed supply of labor.

An increase in the stock of capital is good for the economy. Workers will enjoy higher wages and total GDP in the economy will increase with additions to the stock of capital. Workers are more productive because they have more capital at their disposal.

Next, we discuss saving and investment.

The simplest case would be an economy with a constant population and full employment. This economy does not have a government or foreign sector. Consumers or firms can purchase its output.

Saving must equal investment in this economy.

Whatever consumers decide to save goes into investment.

The stock of capital in the economy needs to be linked to the level of investment in the economy. The stock of capital decreases with depreciation. As capital stock items get older, they wear out and become less productive. The buildings and equipment that are obsolete need new investment.

The stock of capital at the beginning of the year is $10,000.

The capital stock at the end of the year would be $10,600 if there were $1,000 in gross investment and $400 in depreciation.

It is helpful to picture a bathtub. The level of water in the bathtub depends on the flow of water into the bathtub through the input faucet and the flow of water out of the bathtub down the drain.

The stock of capital will increase if the flow in exceeds the flow out.

The stock of capital available for production will increase if higher saving leads to higher gross investment. There will be more depreciation as the stock of capital grows. The stock of capital affects the level of real wages and output. Net invest ment is $1,000 - $400.

The simplest economy is Population Growth, Government, and Trade. A realistic economy includes population growth, a government, and trade.

A larger labor force will allow the economy to produce more output. With a fixed amount of capital and an increasing labor force, the amount of capital per worker will be less. Output will be less because each worker has less machines to use. The principle of diminishing returns is shown in this illustration.

At a decreasing rate, output will increase.

India has over a billion people, making it the second most populous country. India has a large labor force, but its capital per worker is low.

In India, the per capita output is only $5,350.

The government's policies of spending and taxation can affect the capital process. If the government taxed citi zens so that it could fight a war, pay its legislators higher salaries, or give foreign aid to needy countries, it would engage in government consumption spending.

Total income will be reduced by the higher taxes. Total private savings will fall if consumers save a fixed fraction of their income. The private sector of savings would have been used to deepen the capital.

If the government took all the extra tax revenues and invested them in infrastructure such as roads, buildings, and airports, it would be possible. The capital stock is increased by these infrastructure investments. If con sumers saved 20 percent of their incomes and the government collected $100 in taxes from each taxpayer, private saving and investment would fall by $20 per taxpayer, but government investment in the infrastructure would increase by a full $100 per taxpayer. The government forces consumers to invest an additional $80 in infrastructure that they otherwise wouldn't invest by taxing them. The result is an increase in total social investment of $80 per taxpayer.

Private savings and investment will fall if the government raises taxes by $100 and people save 20 percent of their income.

The foreign sector can affect capital deepenment. They were selling fewer goods and services to the rest of the world than they were buying. They were able to purchase the large amount of capital needed to build their rail networks because of this. They were selling more goods and services to the rest of the world than they were buying from abroad. The three countries were able to pay back the borrowed funds because of economic growth. This approach to financing deepened capital was a good one for them to pursue.

Not all trade deficits promote capital growth. A country has a trade deficit because it wants to buy more consumer goods. The country would be borrowing from abroad, but there wouldn't be any additional capital. There will be no additional GDP to help foot the bill when the country is forced to pay back funds. The country will be poorer in the future in order to fund current consumption.

technological progress is one of the mechanisms affecting economic growth.

There are many forms of technological progress. The invention of the light bulb made it possible to read and work at night, the invention of the ther mometer assisted doctors and nurses in their diagnoses, and the invention of disposable diapers made life easier at home. You could provide many more--enabling society to produce more output without more labor or capital.

We enjoy a higher standard of living with higher output per person.

The birth of new ideas can be seen as technological progress. We can rearrange our economic affairs and become more productive with these new ideas. Some tech innovations are more basic than others. An employee of a soft-drink company who discovers a new and popular flavor for a soft drink is engaged in technological progress just like scientists and engi neers. Simple, commonsense ideas from workers or managers can help a business use its capital and labor more efficiently to deliver a better product to consumers at a lower price. A store manager may decide that rearranging the layout of merchandise and the location of the cash register helps customers find products and pay for them more quickly and easily. The change is also technological. If there are new ideas, inventions, and new ways of doing things, the economy can become more productive and per capita output can increase.

Robert Solow developed a method for measuring technological progress in an economy. His theory was easy to understand. The idea of a production function is what inspired it.

Over any period, we can see increases in capital, labor, and output. These can be used to measure technological progress. How much of the change in output can be explained by increases in the amount of capital and labor used? Whatever growth we can't explain must be caused by technological progress.