Copyright ©2001, South-Western College Publishing

Contemporary Economics:An Applications ApproachBy Robert J. Carbaugh1st Edition

Chapter 10:

Gross Domestic Product and Economic Growth

Carbaugh, Chap. 10 2

International comparisons of GDP

Gross Domestic Product

GDP GDPNation (billions) per person*

United States $7,690 $28,740Germany 2,320 21,300Japan 4,722 23,400Canada 584 21,860Australia 380 20,170United Kingdom 1,220 20,520France 1,526 21,860Mexico 349 8,120Malaysia 98 10,920India 374 1,650* measured at purchasing power parity

Some international comparisons of GDP, 1997GDP = C + I + G + (X - M)

Gross Domestic Product =

Personal consumption (C)

+ Gross private domesticinvestment (I)

+ Government purchases ofgoods and services (G)

+ Net exports (exports - imports)[X-M]

Carbaugh, Chap. 10 3

Components of US GDP, 1998

Gross Domestic Product

Amount PercentComponent of GDP (billions) of total

Disposition of household income $5,807.9 68% Durable goods 724.7 Non-durable goods 1,662.4 Services 3,420.8

Gross private domestic investment 1,367.1 16% Fixed investment (plant, equipment) 1,307.8 Business inventories 59.3

Government purchases of goods and services 1,487.2 17% Federal 520.6 State and local 966.6

Net exports of goods and services -151.2 -1% Exports 959.0 Imports -1,110.2

Gross Domestic Product 8,511.0 100

Carbaugh, Chap. 10 4

Nominal GDP, real GDP, and deflator

Gross Domestic Product

Nominal GDP Real GDP GDP deflatorYear (billions) (billions) (1992=100)

1985 $4,180.7 $5,329.5 78.41986 4,422.2 5489.9 80.61987 4696.3 5648.4 83.11988 5049.6 5862.9 86.11989 5438.7 6060.4 89.71990 5743.8 6138.7 93.61991 5916.7 6079.0 97.31992 6244.4 6244.4 100.01993 6553.0 6386.4 102.61994 6935.7 6698.7 103.51995 7253.8 6742.9 107.61996 7636.0 6928.4 110.21997 8110.9 7269.8 111.61998 8511.0 7551.9 112.7

Nominal and real GDP, 1985-1998

Real GDP

nominal GDPGDP deflator

100

Carbaugh, Chap. 10 5

Economic growth

Gross Domestic Product

Sources Average annualof growth percentage rates

Capital growth 0.56Labor growth 1.34Technological progress 1.02

Growth in output 2.92

Sources of US economic growth, 1929-1982

Rate of growth

Year2 real GDP - Year1 real GDPYear1 real GDP

Carbaugh, Chap. 10 6

Productivity slowdown

Economic Growth

Labor productivity Real hourly earningsYear growth rate growth rate

1960s (avg.) 3.2% 2.9%1970s (avg.) 1.8 1.31980s (avg.) 1.2 0.21990 0.8 0.31991 0.6 0.61992 3.4 2.11993 0.2 -0.51994 0.5 -0.61995 0.1 0.31996 2.0 0.51997 1.9 1.5

Annual rates of growth in US labor productivity and real hourly earnings 1960-1995

Source: US Dept. of Commerce, Bureau of the Census, Statistical Abstract of the US, 1998

Carbaugh, Chap. 10 7

Research & Development Expenditures as a share of GDP, 1996

2.6%

2.8%

2.3%

2.3%

2.1%

1.1%

2.1%

2.7%

2.2%

2.1%

1.8%

1.1%

0% 1% 1% 2% 2% 3% 3%

United States

Japan

Germany

France

United Kingdom

Italy

Total Non-defense

Economic Growth: Role of Government

Carbaugh, Chap. 10 8

Impact of education, trade and infrastructure

High

Low

Low

High

3.8

3.2

0.6

-0.10

0.5

1

1.5

2

2.5

3

3.5

4

Education

Openness to trade, supply of

telecom infrastructure

Economic Growth: Role of Government

Gro

wth

of

GD

P p

er C

apit

a (p

erce

nt

per

yea

r)

Impact of education, openness to trade, and telecommunications infrastructure on economic growth in seventy-four countries, 1965-95

Source: World Bank, World Development Report, 1999

Carbaugh, Chap. 10 9

East Asian economies' growth rates

Economic Growth

GDP per capita* GDP growth annual average %

(1997 dollars) 1980-90 1990-97

Hong Kong 24,540 6.9% 5.3%Singapore 29,000 6.6 8.5South Korea 13,500 9.5 7.2Malaysia 10,920 5.2 8.7Thailand 6,590 7.6 7.5Indonesia 3,450 6.1 7.5China 3,570 10.2 11.9Philippines 3,670 1.0 3.3Rich industrial countries 21,091 3.2 2.1* at purchasing power parity

Source: World Bank, World Development Report 1998/99