Chapter 1 - The Facts to be Explained
Some Facts
• 8 billion people inhabit the earth
• 884 million do not have safe water
• 925 million do not have enough food
Life expectancy at birth:
• 56 years for low developed countries
• 69 years for medium developed countries
• 76 years for highly developed countries
Living Standards
In 2008, the number of cars per 1000 people:
• 687 in Australia
• 2 in Bangladesh
In 2003, world electricity use:
• 2.3% in Sub-Saharan Africa (11% of world population)
• 26% in the United States (4.6% of world population)
Why rich and poor?
• 20% of the world receives 60% of total income
• 2.6 billion people survive less than two dollars per day
• 1.1 billion people survive less than one dollar per day
Facts over Time
Life expectancy in Japan
• 35 years in 1880
• 83 years Today
Average workweek in USA
• 61 hours in 1870
• 34 hours Today
Main Questions in Growth
• Will the richest countries continue to grow richer?
• Are the poor countries in poverty trap?
• Will the gaps between rich and poor close?
• Will the limitations of resources make it impossible for poor to catch up?
• Will new technologies allow human race to leave behind the scarcity?
GDP
A measure of the value of all goods and services produced in a country in a year.
GDP = C + I + G + NX
GDP = w + r + i + π
Growth Rate
Growth rates of income: how quickly their income per capita is rising.
g = (GDP(t+1) - GDP(t)) / GDP(t)
Rule of 72:
Doubling time = 72/g
Growth Facts
• 1.8% annual growth rate of US income over the period 1870-2009
• 12.3-fold increase in income per capita
• Growth miracles (USA, Canada, Japan)
• Growth disasters (Nicaragua, Somalia, Zimbabwe)
Income Inequality
Which is more important?
• Within-country inequality
• Between-country inequality
Some Definitions
• Capital: machines, vehicles, buildings, and other equipment.
• Investment: the goods and services devoted to the production of new capital.
• Productivity: the amount of output produced with each unit of capital.
• Technology: the available knowledge about how inputs can be combined to
produce output.
Definitions Cont’d
• Efficiency: how the available technology and inputs into production are
actually used in producing output.
• Factors of production: inputs used in production (worker, capital)
Economic models: simplified representations of reality that can be used to analyze
how economic variables are determined.