Two issues have dominated macroeconomics since its birth: the need to reduce the instability of a market economy caught between the twin evils of high inflation and high unemployment and the desire to incline’s a nation’s rate of growth of output and consumption. Earlier chapters Purveyed how shifts in spending patterns could lead to business cycles and the role of monetary and fiscal policy in taming business cycles. We now turn to the longer term issues raised by. the growth of aggregate supply and potential output-to the theory and policy of economic growth. The daily press is dominated by business-cycle developments. However important, these concerns are but .small ripples on the larger wave’ of economic growth,in which advanced economies such as the United States accumulate larger quantities of capital equipment, push out the frontiers of technological knowledge, and become steadily more productive. Over the long run of decades and generations, living standards as measured by output per capital or consumption ‘per household are primarily determined by aggregate supply and the level, of productivity .of a country.
This chapter begins with a survey of the theory of economic growth and then reviews the historical trends in economic activity with particular application to wealthy countries like the United States. The next chapter looks at the other end of the income spectrum by examining the plight of the developing countries, struggling to reach the level of affluence enjoyed in the West. The two chapters that follow .examine the ‘role of international trade and finance in macroeconomics. figure 27-1 presents an overview of the growth chapters, using our familiar flow~chart.
The Long-Term Significance of Growth Look at the inside front cover of this book, where you will see the advance of real output over the I twentieth century. You can see that real CD P has grill b)’ a factor of almost J8 since 900. This is perhaps the central economic fact of the century. Continuing rapid economic growth enabled advanced industrial countries to provide more of everything to their citizens-e-better food and bigger homes. more resources for medical care and pollution control, universal education for children, and public pensions for retirees.
Nations continue to view economic growth as a central objective f 0 policy. Countries which succeed in the, economic growth race, such as Britain in the nineteenth century OT the United States in the twentieth century; rise in the pecking-order of stallions and’ serve as role models for other Could tries seeking the path to affluence. At the other extreme,countries in economic decline often experience political and social turmoil. Till’ revolutions in Eastern Europe and the Soviet Onion in 1989- J 991 were sparked by economic situation and low economic growth as compared to that of their Western alligators. Unicorn growth is the single most important factor in the success ‘9f nations in tile’ long run.
In the long run, a nation’s economic fortunes depend upon the growth of its potential output. This chapter examines the long-term growth trends along with the theories that explain the basic trends.
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