Page 411 - Krugmans Economics for AP Text Book_Neat

figure 37.1

Economic Growth in the United Real GDP
per capita
States, India, and China over
(log scale)
the Past Century $100,000
Real GDP per capita from 1908 to 2008, meas-
ured in 1990 dollars, is shown for the United World War II United States Section 7 Economic Growth and Productivity
States, India, and China. Equal percent changes
in real GDP per capita are drawn the same 10,000
size. India and China currently have a much
higher growth rate than the United States. How-
ever, China has only just attained the standard China
of living achieved in the United States in 1908,
while India is still poorer than the United States 1,000
was in 1908. India
Sources: Angus Maddison, Statistics on World Population,
GDP, and Per Capita GDP, 1–2008AD, http://www.ggdc.net/
maddison.
1908 1920 1930 1940 1950 1960 1970 1980 1990 2000 2008

Year

person as it did in 1908. Alternatively, in 1908, the U.S. economy produced only 15% as
much per person as it did in 2008.
The income of the typical family normally grows more or less in proportion to per
capita income. For example, a 1% increase in real GDP per capita corresponds, roughly,
to a 1% increase in the income of the median or typical family—a family at the center of
the income distribution. In 2008, the median American household had an income of
about $50,000. Since Table 37.1 tells us that real GDP per capita in 1908 was only 15%
of its 2008 level, a typical family in 1908 probably had purchasing power only 15% as
large as the purchasing power of a typical family in 2008. That’s around $8,000 in
today’s dollars, representing a standard of living that we would now consider severe
poverty. Today’s typical American family, if transported back to the United States of
1908, would feel quite a lot of deprivation.
Yet many people in the world have a standard of living equal to or lower than that of
the United States a century ago. That’s the message about China and India in Figure 37.1:
despite dramatic economic growth in China over the last
three decades and the less dramatic acceleration of economic table 37.1
growth in India, China has only just attained the standard
of living that the United States enjoyed in 1908, while India U.S. Real GDP per Capita
is still poorer than the United States was in 1908. And much
of the world today is poorer than China or India. Percentage of Percentage of
1908 real GDP 2008 real GDP
You can get a sense of how poor much of the world re-
Year per capita per capita
mains by looking at Figure 37.2 on the next page, a map of
1908 100% 15%
the world in which countries are classified according to
their 2008 levels of GDP per capita, in U.S. dollars. As you 1928 144 21
can see, large parts of the world have very low incomes. 1948 199 29
Generally speaking, the countries of Europe and North
1968 326 48
America, as well as a few in the Pacific, have high incomes.
The rest of the world, containing most of its population, 1988 493 72
is dominated by countries with GDP less than $5,000 per 2008 684 100
capita—and often much less. In fact, today more than 50%
Source: Angus Maddison, Statistics on World Population, GDP, and Per Capita GDP,
of the world’s people live in countries with a lower stan- 1–2008AD, http://www.ggdc.net/maddison.
dard of living than the United States had a century ago.

module 37 Long-run Economic Growth 369