What have you tried your hardest to understand but just couldn't?

Economic growth is measured in increases in GDP which measures the value of a countries output. Sustained economic growth over the long term is still up for debate. I will try and ELI5 a model which helps try to explain economic growth in an economy. (Will be a very generalised overview mind, study a master in economics for the full breakdown)

Through macroeconomic models economists have tried to explain theoretically the evolution of economic growth, they have then collected the data for various countries and found that it’s a pretty good model (although like everything has its critisms amongst economists).

Ignore all the fancy functions but take a quick look at this graph http://www.personal.psu.edu/~dxl31/ec201/growth2.jpg

The graph shows us kind of the evolution of an economy by the bended dark line (economic investment) and the diagonal blue line basically tells us how much investment is needed to keep per capita capital constant over time.

We can see that the lines interact at some point, this is the point where the economy is in a steady state, i.e. the economy does not grow. Now this never happens in the real world but even if it ever did we would probably have some positive/negative economic shock which would kick us out of this steady state, think of a war, killing off millions of people or the introduction of new technology, these and many other factors all affect economic growth and economists are constantly playing with mathematical models adding new variables, what iff scenarios etc. So when Germany opened up their borders to migrants last year they were in fact in a period of negative population growth, this would cause all kinds of problems down the line (negative economic growth) so perhaps economists were part of the reason behind that decision, IDK.

This model tells us that the economy grows when labour grows and when we accumulate more capital, so as long as they are growing the economy grows

So keep making babies

/r/AskReddit Thread Parent