When considering economic growth, many policy makers focus on real GDP per capita since it takes into account the potentially distorting effects of ______________ and ________________.
Any large, sustainable increase in real GDP must be the result of increased_____________. That is, it must be due to higher __________.
thanks
population change, labor productivity
When considering economic growth, many policy makers focus on real GDP per capita since it takes into account the potentially distorting effects of inflation and population growth.
Inflation refers to the general increase in prices over time, which can reduce the purchasing power of individuals and households. If economic growth is measured simply in terms of nominal GDP (not adjusted for inflation), it could give a misleading impression of actual changes in the economy. By using real GDP, which is adjusted for inflation, policy makers can better understand the true growth in the production of goods and services.
Population growth is another factor that can distort economic growth measures. If a country's population is growing rapidly, it can inflate the overall GDP figure, but not necessarily reflect an increase in the standard of living or economic well-being of individuals. By dividing real GDP by the population (per capita), policy makers can account for population growth and better gauge the economic progress on an individual level.
Now, regarding the factors that contribute to real GDP growth, any sustainable increase in real GDP must be the result of increased productivity. Productivity refers to the efficiency with which inputs (such as labor, capital, and technology) are converted into outputs (goods and services). Higher productivity enables a country to produce more goods and services with the same resources, leading to economic growth.
Therefore, when policy makers focus on real GDP per capita, they are considering a measure that accounts for inflation and population growth, and they are interested in identifying the factors that contribute to increased productivity, such as advancements in technology, improvements in education and skills, and efficient allocation of resources.