Economic Growth: Visualization

In all modern economies, many different kinds of products and services are produced. In earlier chapters, we have used the Production Possibility Frontier to visualize that, and in the last chapter we discussed some of the complications that arise in measuring Gross Domestic Product in an economy that produces two or more distinct goods. Of course, the same complications arise in the study of the growth of GDP.

We can visualize economic growth as a shift in the Production Possibility Frontier. In the figure shown below, growth means the economy is able to produce more of everything.

Figure 2
Economic Growth in a Two-Product Economy

When the production possibility frontier shifts outward, the society can produce more of both (or rather many different) kinds of goods and services. It is this increase in production possibilities that underlies the increase in RGDP per capita, and, in turn, the RGDP statistics are designed to measure economic growth in this sense.

Economic Growth: Visualization

Figure 2 Economic Growth in a Two-Product Economy

Figure 2
Economic Growth in a Two-Product Economy