There are big variations in average growth rates for different countries and evidence for this is shown in the chart above which tracks real GDP changes for China, India, the UK, USA and average growth for nations inside the Euro Zone.
- China and India are examples of very fast-growing countries. Their annual growth has far exceeded that for most advanced economies; China has out-paced India although both have experienced a slowdown in growth over the last couple of years
- For nations such as the USA and the UK, “normal growth” is of the order of 2 – 3% per year – depending on where each economy is in their business (trade) cycle. The Euro Zone growth rate is similar but keep in mind that this is an average, there are seventeen countries at present who share the same currency, some have been growing quite quickly and others have struggled to escape from a deep recession and the persistent risk of a depression.
- In our diagram we see how a rise in a nation’s productive capacity causes the PPF to shift out and this allows increased supply both of consumer and capital goods.
- Where the economy ends up depends on the decisions made about the allocation of scarce resources between products to be bought and consumed today and the production of capital goods such as new technology, plant and equipment and buildings.
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