Chapter 18, Problem 18.1LO

To determine

Impact of population growth on economic growth.

Explanation of Solution

The per capita income in the country measures the real growth of the economy. It implies how the growth in the country affects the income and employment of the economy. The Real GDP equals the total income divided by the population of the country in any given year. In other words,

$Per Capita Real GDP=\frac{Real GDP}{Population}$.

he growth rate of the population equals the difference between the growth rate of the income and the growth rate of the population. This implies that,

$Average annual growth rate of the per capita real income \left(yr\right)=Average Annual growth rate of income\left(y\right)-Average annual population growth rate\left(p\right)$.

Thus, the increase in the population growth rate staggers the growth effects in the economy. Further, the lower Real GDP deters the growth of the economy in the long run as the growth is distributed among increasingly higher number of heads to be fed. The higher population thus, absorbs the growth effect.

Economics Concept Introduction

Introduction:

Population growth An increase in the number of individuals in an economy leads to a growth of the population. An increase in the average human age coupled with a decreasing death rate leads to an increase in the population of country in specific and world at large.

Population growth rate - The average annual growth rate of the population of the country.

$p=Pt-P(t-1)$.

Where p = Population growth rate, P=Population, t=current time period and (t-1) = previous time period.

Economic Growth or rate of growth of GDP- It is the macroeconomic measure of the value of economic output in a country in a given year. Algebraically, the GDP equation is written as:

$Y=C+I+G+\left(X-M\right)$.

Where Y = GDP, C = Consumption, I = Investment, G = Government, X = Exports and M = Imports. The value of C, I, G and (X-M) changes with a change in the method of aggregation of the income.

Real GDP - GDP adjusted for inflation/deflation is the Real GDP of the country. It is also called the “constant price”, “inflation corrected” or “constant dollar GDP”. It is the significant economic measure indicating the economic growth and purchasing power in the economy. Algebraically it is expressed as:

$Yr=GDP/D$.

Where Yr = Real GDP, Y = GDP and D = adjustment factor.