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section 7

Module 37: Long-run Economic Growth
Module 38: Productivity and Growth
Module 39: Growth Policy: Why Economic Economic
Growth Rates Differ
Module 40: Economic Growth in
“Why Are Some Nations Rich and Others Poor?” Growth and
Macroeconomic Models
Economics by Example:

Productivity

China is growing—and so are the Chinese. According to of- the world’s most dramatic example of economic growth—a
1
ficial statistics, children in China are almost 2 ⁄2 inches sustained increase in the productive capacity of an economy.
taller now than they were 30 years ago. The average Chi- Yet despite its impressive performance, China is currently
nese citizen is still a lot shorter than the average American, playing catch -up with economically advanced countries like
but at the current rate of growth the difference may be the United States and Japan. It’s still relatively poor because
largely gone in a couple of generations. these other nations began their own processes of economic
If that does happen, China will be following in Japan’s growth many decades ago—and in the case of the United
footsteps. Older Americans tend to think of the Japanese as States and European countries, more than a century ago.
short, but today young Japanese men are more than 5 Unlike a short-run increase in real GDP caused by an
inches taller on average than they were in 1900, which increase in aggregate demand or short-run aggregate
makes them almost as tall as their American counterparts. supply, we’ll see that economic growth pushes the produc-
There’s no mystery about why the Japanese grew taller— tion possibilities curve outward and shifts the long-run ag-
it’s because they grew richer. In the early twentieth century, gregate supply curve to the right. Because economic growth
Japan was a relatively poor country in which many families is a long-run concept, we often refer to it as long-run economic
couldn’t afford to give their children adequate nutrition. As growth for clarity. Many economists have argued that long -
a result, their children run economic growth—
grew up to be short why it happens and
adults. However, since how to achieve it—is
World War II, Japan has the single most im-
become an economic portant issue in mac -
powerhouse in which roeconomics. In this
food is ample and young section, we present
adults are much taller some facts about long-
than before. run growth, look at
The same phenome- the factors that econ-
non is now happening omists believe deter-
in China. Although it mine its pace, examine
continues to be a rela- how government poli-
tively poor country, cies can help or hinder
China has made great growth, and address
economic strides over questions about the
the past 30 years. Its re- AP Photo/EyePress environmental sus-
cent history is probably tainability of growth.

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