Introduction to Economic Growth

What you’ll learn to do: explore economic growth

Inside of an industrial factory.

Over time, real GDP increases. Some years it increases faster than average. Some years it increases slower than average. Some years GDP declines. These waves of peaks and troughs are describe as the business cycle.

In this section, we will explore economic growth, which is the increase in economic activity that occurs over the long term. We measure economic growth by real GDP per capita, but growth is a broader collection of social and economic changes, which lead to an increase in the standard of living.

You’ll see why growth happened rapidly following the Industrial Revolution, and why growth remains important today. You will also determine what factors lead to improvements in standards of living.

CALORIES AND ECONOMIC GROWTH

The picture shows the average daily calorie consumption for an individual from various countries. The United States has the highest intake at 3,770 calories.

Figure 1. Average Daily Calorie Consumption. Not only has the number of calories consumed per day increased, so has the amount of food calories that people are able to afford based on their working wages. (Credit: modification of work by Lauren Manning/Flickr Creative Commons).

On average, humans need about 2,500 calories a day to survive, depending on height, weight, and gender. The economist Brad DeLong estimates that the average worker in the early 1600s earned wages that could afford him 2,500 food calories. This worker lived in Western Europe. Two hundred years later, that same worker could afford 3,000 food calories. However, between 1800 and 1875, just a time span of just 75 years, economic growth was so rapid that western European workers could purchase 5,000 food calories a day. By 2012, a low skilled worker in an affluent Western European/North American country could afford to purchase 2.4 million food calories per day.

What caused such a rapid rise in living standards between 1800 and 1875 and thereafter? Why is it that many countries, especially those in Western Europe, North America, and parts of East Asia, can feed their populations more than adequately, while others cannot? We will look at these and other questions as we examine long-run economic growth.