Economic Development and Economic Growth
INTRODUCTION The main topic of economics should be economic growth and development, “the nature and causes of the wealth of nations.” (Adam Smith) The main questions are: How do capitalist economies grow? What is the relationship between economic growth and economic development? What is innovation and its relationship to economic development? ECONOMIC GROWTH Economic growth is the growth rate of total output, usually measured by real Gross Domestic Product (GDP). Total output is not measured directly. Sales (nominal GDP) are added up and the growth rate calculated. The inflation rate is calculated separately and subtracted from the growth rate of nominal GDP. What remains is the growth rate of real GDP. Between 1950 and 2000, the U.S. economy (real GDP) grew at about 3.5% per year. Since 2000, with two recessions, the growth rate has been around 2.0% per year. Even the recovery from the 2008-2009 recession has been only somewhat above 2.0%. Small changes in compound growth over time