Why do we consider a business-cycle expansion different from long-run economic growth?
Why do we care about the size of the long-run growth rate of real GDP versus the size of the growth rate of the population?
Take a shot, what do you think? Hint think short run vs long run and total GDP vs per-captia GDP.
Need a helpful website that i can read to help explain the following question. or some insight on this question.
Between 1968 and 1980, the US economy experienced a slowdown in productivity growth. However, since the mid 1980s, the economy has experienced increases in the growth rate in productivity. Can you give reasons why US productivity growth started to increase during the late 1980s and continued throughout the decade of the 1990s?
A business-cycle expansion and long-run economic growth are two distinct concepts in economics.
1. Business-cycle expansion: This refers to the short-term fluctuations in economic activity that occur around the long-term trend or average growth rate. It typically involves periods of economic expansion, characterized by increasing levels of economic output, employment, and income, followed by periods of contraction or recession. Business-cycle expansions are temporary and cyclical in nature, influenced by various factors such as changes in consumer spending, business investment, government policies, and global economic conditions.
2. Long-run economic growth: This represents the sustained and ongoing increase in the potential output of an economy over an extended period of time. It is driven by several factors, including technological advancements, improvements in productivity, investments in capital and infrastructure, and growth in the labor force. Long-run economic growth is typically measured by the growth rate of real gross domestic product (GDP), which is the value of all final goods and services produced within an economy adjusted for inflation.
Now, let's address the second part of your question.
The size of the long-run growth rate of real GDP versus the size of the growth rate of the population is important for several reasons:
1. Standard of living: Higher long-run economic growth rates enable an economy to produce more goods and services, which leads to an increase in the overall standard of living for its population. A higher GDP growth rate allows for more resources to be allocated towards improving infrastructure, healthcare, education, and other essential services, ultimately enhancing the well-being of individuals.
2. Employment opportunities: Sustainable economic growth is closely linked to the creation of new jobs. A higher long-run growth rate of real GDP indicates that an economy is expanding and creating more employment opportunities. This is crucial for reducing unemployment and ensuring a stable and productive labor market.
3. Fiscal sustainability: Government revenues, which are often derived from taxes on economic activity, depend on the size of the economy. A higher long-run growth rate of real GDP translates into a larger tax base, which can support public expenditures on various services such as healthcare, education, social welfare, and infrastructure development. It contributes to the fiscal stability and sustainability of a country.
4. Income inequality: Long-run economic growth can have an impact on income distribution within a society. While the relationship between economic growth and income inequality can be complex and context-specific, in general, higher growth rates can create more opportunities for income and wealth generation for a broader segment of the population. However, the actual distribution of the benefits of growth depends on various factors, including government policies and social institutions.
Overall, monitoring and considering the size of the long-run growth rate of real GDP relative to population growth is important for assessing the health and performance of an economy, understanding its potential for improvements in living standards, employment, and fiscal stability, and addressing income inequality issues.
We consider a business-cycle expansion different from long-run economic growth because they represent two different concepts.
A business-cycle expansion refers to a period in the economic cycle where the economy experiences an increase in economic activity, leading to higher levels of employment, production, and income. During a business-cycle expansion, the overall economy is operating above its long-term trend growth rate. These expansions are generally temporary and can be followed by periods of contraction, or recessions.
On the other hand, long-run economic growth refers to a sustained increase in the capacity of an economy to produce goods and services over an extended period of time. It represents the ability of an economy to increase its potential output over time through technological advancements, capital accumulation, and improvements in productivity. Long-run economic growth is generally measured using indicators such as the growth rate of real GDP (Gross Domestic Product).
Now, let's discuss why we care about the size of the long-run growth rate of real GDP compared to the growth rate of the population.
The size of the long-run growth rate of real GDP (commonly referred to as the economic growth rate) is important because it reflects the overall performance and well-being of an economy. Higher economic growth rates usually indicate higher standards of living, increased job opportunities, and improved living conditions for the population.
However, it is also important to consider the growth rate of the population alongside the economic growth rate. The growth rate of the population directly affects the size of the labor force, which is a crucial factor in an economy's production capacity. If the population is growing at a faster rate than the economy's growth rate, it can lead to a decrease in the standard of living and higher unemployment rates. On the other hand, if the population growth rate is slower than the economic growth rate, it can lead to higher levels of employment, increased productivity, and improved living standards.
In summary, we consider a business-cycle expansion different from long-run economic growth because they represent different concepts with different durations. We care about the size of the long-run growth rate of real GDP compared to the growth rate of the population because it reflects the overall economic performance and provides insights into the standard of living and employment opportunities in an economy.