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Week 4 · Module overview

Week 4 — Economic Growth & Productivity

Principles of Macroeconomics Free sample edition

Why this matters

A small-business owner planning when sales might double and a nursing student asking whether a booming city really pays more per person both use this week's growth tools. So does a city planner asking why one region pulls ahead.

In plain language

Some countries produce far more per person than others, and the gap usually comes from growth that piled up over many years. This week you measure that growth. A growth rate (how fast something gets bigger, as a percent of where it started) of 5 percent means next year's output is 5 percent larger than this year's. A shortcut called the rule of 70 (a quick way to estimate how long something takes to double) says an economy growing 7 percent a year doubles in about 10 years. You will also learn why output per person, not total output, tracks living standards, and where lasting growth comes from: better equipment, better skills, and better ideas.

  • Already covered: Week 1 gave you the frontier, Week 2 real GDP, and Week 3 the rate of change.
  • This week: growth rates, the rule of 70, per-capita growth, and productivity.
  • How they connect: growth is a rate of change in real GDP, pictured as the frontier moving outward.
  • Where we're going next: Week 5, Aggregate Demand & Aggregate Supply, turns to the short run.

Focus

Why are some economies so much richer than others, and what does 2 percent versus 7 percent growth mean over a lifetime?

By the end of this module, you should be able to:

  • [ ] compute a growth rate by dividing the change by the starting value
  • [ ] estimate a doubling time with the rule of 70
  • [ ] compute per-capita growth and say what it means
  • [ ] name the three sources of growth in productivity

To-do

Plan your week

  1. Read Chapter 4 (about 40 minutes), then the lecture and slides.
  2. Work the lecture tutorial (60–90 minutes) and the practice set (about 20 minutes).
  3. Do the Model Workshop (about 90 minutes), the discussion, and the assignment.
  4. Take the quiz.

This week's checkpoint: take one growth rate, find its doubling time with the rule of 70, and say why it is about.

You've got this

Take it in order, and ask your instructor early.

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