2024-2025
INTRODUCTION TO MACRO
ECONOMICS SUMMARY MODULE 3
CHAPTER 27
THE WEALTH OF NATIONS AND ECONOMIC GROWTH
KH
, Questions answered in this chapter:
• Why are some nations wealthy and others poor?
• Why do certain nations get wealthier faster than others?
• Can anything be done to help poor nations to become wealthy?
Key facts about wealth of nations and economic growth
GDP per capita varies greatly among nations:
We notice that in figure 27.2 of the book (p. 543) countries that represent around 70% of the
world’s population have a GDP per capita that is lower than the world’s average. This does not
mean that the distribution of the wealth happened equitably. In most of these countries you will
notice a significant diOerence between the very rich and the middle class or the poor.
Everyone used to be poor:
The rule is to be poor and the exception is to be wealthy. It is estimated that the GDP per capita
anno 1 AD would have been between 700-1000 USD in todays money (per year) which is
comparable to the income of the poorest people on the planet today. This used to be the case
across the entire planet but today we see a diOerence of as high as 50x between a rich and a poor
country. For years over a thousand years there was no change in the long run growth in real per
capita GDP but around the 19th century we saw a select few grow at an unprecedented rate.
A primer on growth rates:
Economic Growth = growth rate of real per capita GDP
𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 𝑦𝑒𝑎𝑟 2 − 𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 𝑦𝑒𝑎𝑟 1
𝐺𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 𝑟𝑒𝑎𝑙 𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 = ∗ 100
𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 𝑦𝑒𝑎𝑟 1
=
𝑌! − 𝑌!"#
𝑔! = ∗ 100
𝑌!"#
Compounding growth:
Compounding growth, also known as exponential growth is when a percentual growth of the
current year is based on the result of the percentual growth of the previous year.
A way to approximate the time for a variable to double:
The rule of 70: where x is the annual growth rate in %
70 𝑦𝑒𝑎𝑟𝑠
𝑇𝑖𝑚𝑒 𝑖𝑡 𝑡𝑎𝑘𝑒𝑠 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑡𝑜 𝑑𝑜𝑢𝑏𝑙𝑒 =
𝑥
INTRODUCTION TO MACRO
ECONOMICS SUMMARY MODULE 3
CHAPTER 27
THE WEALTH OF NATIONS AND ECONOMIC GROWTH
KH
, Questions answered in this chapter:
• Why are some nations wealthy and others poor?
• Why do certain nations get wealthier faster than others?
• Can anything be done to help poor nations to become wealthy?
Key facts about wealth of nations and economic growth
GDP per capita varies greatly among nations:
We notice that in figure 27.2 of the book (p. 543) countries that represent around 70% of the
world’s population have a GDP per capita that is lower than the world’s average. This does not
mean that the distribution of the wealth happened equitably. In most of these countries you will
notice a significant diOerence between the very rich and the middle class or the poor.
Everyone used to be poor:
The rule is to be poor and the exception is to be wealthy. It is estimated that the GDP per capita
anno 1 AD would have been between 700-1000 USD in todays money (per year) which is
comparable to the income of the poorest people on the planet today. This used to be the case
across the entire planet but today we see a diOerence of as high as 50x between a rich and a poor
country. For years over a thousand years there was no change in the long run growth in real per
capita GDP but around the 19th century we saw a select few grow at an unprecedented rate.
A primer on growth rates:
Economic Growth = growth rate of real per capita GDP
𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 𝑦𝑒𝑎𝑟 2 − 𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 𝑦𝑒𝑎𝑟 1
𝐺𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 𝑟𝑒𝑎𝑙 𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 = ∗ 100
𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 𝑦𝑒𝑎𝑟 1
=
𝑌! − 𝑌!"#
𝑔! = ∗ 100
𝑌!"#
Compounding growth:
Compounding growth, also known as exponential growth is when a percentual growth of the
current year is based on the result of the percentual growth of the previous year.
A way to approximate the time for a variable to double:
The rule of 70: where x is the annual growth rate in %
70 𝑦𝑒𝑎𝑟𝑠
𝑇𝑖𝑚𝑒 𝑖𝑡 𝑡𝑎𝑘𝑒𝑠 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑡𝑜 𝑑𝑜𝑢𝑏𝑙𝑒 =
𝑥
