Principles of Macroeconomics / Unit 18 MAC 1725 worked example, 60 to 90 seconds
Per Capita and Growth Rates
The idea
Convert between total growth, per capita growth and doubling time. Per capita growth is roughly total growth minus population growth. Doubling time is about seventy-two divided by the annual growth rate. Both are approximations and both are exam-usable.
In practice
An economy's output grows 3.5 percent a year while its population grows 1.2 percent. Income per person therefore grows about 2.3 percent a year. At 2.3 percent, income per person doubles in about seventy-two divided by 2.3, which is roughly thirty-one years. Now compare a second economy growing output at 3.5 percent with population growth of 3.0 percent: per capita growth is 0.5 percent, and doubling takes about a hundred and forty-four years. The two economies grew their output identically.
Where people slip
That comparison is the one to carry. Two economies with the same headline growth rate can deliver completely different experiences to the people in them, and a question quoting total growth without population growth has not told you what happened to living standards.
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