Short-Run Growth (actual growth):

On the PPF graph to the right, take your cursor or
finger and drag Point A inside the PPF.  Now drag
Point B above and to the right of Point A, but still
either inside or on the PPF.  This indicates an
actual increase in the economic growth from
Point A to Point B.   

In the short-run, actual growth in economic
growth can occur through changes in different
macroeconomic policies that you will learn later
in this course (short-run aggregate supply
policies, short-run fiscal policies, and short-run
monetary policies).

Long-Run Growth (potential growth):

On the PPF graph to the right, take your cursor
or finger and drag the PPF curve outward.  
This indicates an increase in potential economic
growth.   

In the long-run, potential growth can occur
though changes you will learn later in this
course (long-run aggregate supply policies,
long-run fiscal policies and long-run monetary
policies implemented to guide the economy to
increase the productive labor force,
increase that quantity and quality of our natural
resources, increase the quantity and quality of
capital stock, increase health and
education, and increase technology).  

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Looking at the FRED graph
above show what is happening
on a PPF graph for each of the
following:

Point A -- drag this point
indicating a recession shown
in the grey area between Q1
2020 and Q2 2020.

Point B -- drag this point
indicating where the economy
is at the end of Q2 2021.

You are going to learn soon in macroeconomics that economic growth also relates to the growth in
Real Gross Domestic Product (RGDP), which is defined as the total market value of all final goods
and services produced inside a country in a year.  

The formula for Real GDP is:

RGDP = Consumption + Investment + Government Expenditures + (Exports - Imports)
RGDP = C + I + G + (X - M)

Point A -- represents RGDP
in a recession between
Q1 2020 and Q2 2020.

Point B -- represents RGDP
where the economy is at Q2
2021, getting close to the
economy's potential output
on the PPF.

United States

China

Answers to the graphs above:

Potential increase in
Economic Growth

Actual increase in
Economic Growth

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Answers to the graphs above:

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The "stock" concept is the total dollar value of Real GDP (y axis) at each specific period of time (x axis).
The "flow" concept is the percentage change in Real GDP at each specific period of time (x axis).

When looking at a "flow" or a "rate" concept, notice the y axis is a percentage change in RGDP.
This percentage change can be for a month, a quarter, semiannual, or annual.  

Be sure you know how to read the data correctly.  For example, on the graph above use your cursor or
finger and touch the Real GDP percentage change line at the 2nd quarter of 2021 and you will find the
number 1.58757%.  Remember this is for the months of April, May, and June of 2021.  

If you want to calculate the estimated annual rate of growth if all things are held constant, you have
to multiple $1.58757 by 4 = 6.35%.

If the 6.35% annual growth rate in RGDP were to continue through the end of this year, the bathtub would
become too full and create its own problems.  

The COVID Delta variant, along with other supply and demand disruptions might bring the annual RGDP growth
rate down as restrictions to businesses, higher cost of gasoline, shortages on inputs, and so on might cause
some supply challenges.  Down the road, though, government spending of $1.2 trillion dollars for road, bridges,
and infrastructure will spur actual RGDP growth and possibly potential RGDP growth.  Time will be the judge.

Stock and Flow Concepts

Look at this concept as a bathtub and a faucet.  The "stock" is the water in the bathtub at a certain period of time
and the "flow" is the rate at which water flows (little or fast) from the faucet into the bathtub.  

Press the up arrow and then the down arrow for RGDP on the bathtub below to see a visual of this.

Stock Concept

Flow Concept

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The "stock" concept is an absolute number or dollar amount.  On the graph below the y axis is the dollar
value of RGDP and the x axis is the specific time, in this case it is a quarterly basis (every 3 months).

Notice the graph above and the graph below look similar, but they are not identical.

NOTE:  Data inside graphs can be very misleading.

On the graph below the red line indicates a percentage change in the growth rate of RGDP from one quarter
to the next quarter the same as the graph above.  But the blue line indicates a percentage change in
RGDP growth from a year earlier.  (Example:  Qt 2 2020 to Qt 2 2021)

It is imperative for you to know what is shown on the x axis and the y axis.

Notice when you take your cursor or finger and touch the blue line Qt 2 2021 it shows a percentage
change in RGDP growth rate of 12.16%, and when you touch the red line Qt 2 2021 it shows a growth rate
from the previous quarter (Qt 1 2021) of 1.59%.  Obviously, the growth rate for RGDP at the end of
2021 will NOT be 12.16% as this shows the extremes of the low and high quarters in RGDP.  

If the economy continues to grow at 1.59% per quarter throughout the remainder of this year (2021), the
2021 annual RGDP growth rate will be 6.35%.  The third and fourth quarter figures will determine the truth.

Some sources state the economic growth is calculated as the growth in Real GDP per capita (per person) to
indicate the increase or decrease in the standard of living of citizens of a country.

On the graph below are both the U.S. growth in Real GDP (blue line) and the growth in Real GDP per capita
(red line).  Be careful when you look at the graph below as the growth in Real GDP (blue line) is in billions of
dollars and the growth in Real GDP per capita (red line) is shown in thousands of dollars.

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