Chapter 18, Problem 18.1LO

To determine

Impact of population growth on economic growth.

Concept 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 is given by,

Here,

p = Population growth rate,

P = Population ,

t = current time period,

(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:

  $Y=C+I+G+\left(X-M\right)$ .

Here,

Y = GDP ,

C = Consumption,

I = Investment,

G = Government,

X = Exports,

M = Imports.

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:

  $Yr=GDP/D$ .

Here,

Yr = Real GDP,

Y = GDP

D = adjustment factor

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 Per-Capita Real GDP equals the total income divided by the population of the country in any given year. In other words,

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

The growth rate of the Per-Capita Real GDP equals the difference between the growth rate of the income and the growth rate of the population. This implies that,

Thus, the increase in the population growth rate staggers the growth effects in the economy.

Further, a lower Real GDP level 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.