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Chapter Four - Economic Growth

Definition

Economic growth (which is G or g in the Kaya Identity), is defined as the increase per capita of gross domestic product (GDP).  It is, typically, reported as the annual change in real GDP; that is allowing for inflation.

Components

Economic growth is driven primarily by improvements in productivity; essentially the ability to produce more goods and services with the same inputs of labour, capital, energy and materials aided by technology advancements.

Short-run vs. Long-run

Economists distinguish between short-term economic stabilisation (the business cycle) and long-term economic growth.  The long-run path of economic growth is one of the central questions in economics since increases in GDP are, generally, equated to increases in standards of living.  Small differences in growth rates can result in big differences when compunded over years.  For example, an 8% growth rate leads to a doubling of GDP within just 10 years.  Differences in growth rates between countries can sim…