India enjoyed 12.7 percent growth in its gross domestic product (GDP) in 2021. The Organisation for Economic Co-operation and Development (OECD) says this growth was “mainly driven by fixed investment and private consumption.”– World Economic Forum
This table documents some data about India’s economy:
What is the distinction between economic growth and a business cycle expansion? Which type of growth did India experience in 2021?
Economic growth is an expansion of potential GDP. A business cycle expansion is a recovery from recession when real GDP has fallen below potential GDP.
India’s potential GDP grows at an average rate of 5.9 percent per year. Real GDP fell by 8 percent in 2020, so most of India’s 12.7 real GDP growth in 2021 was recovery from recession.
Why does real GDP per person grow more slowly than real GDP?
Real GDP per person grows more slowly than real GDP because the population grows. India’s growth per person has averaged 4.2 percent per year, which equals the real GDP growth rate of 5.9 percent minus the population growth rate of 1.7 percent.
If India’s average real GDP per person growth rate had persisted, when would real GDP per person have doubled?
We use the Rule of 70 to calculate the number of years it takes real GDP per person to double. In 1980 through 2020, India’s average annual growth rate was 4.2 percent per year. If this rate had persisted, real GDP per person would have doubled in 16 years and 8 months (70 ÷ 4.2 = 16.67) after 2020—September 2036!
How does India’s real GDP growth rate and level compare with those of China and the United States?
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What makes real GDP grow?
Investment in capital makes an economy grow.
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Is the OECD correct about the drivers of India’s 2021 growth?
The OECD is correct that an increase in both investment and consumption made GDP expand quickly. But the increase in consumption drove the recovery from recession and investment drove the growth of potential GDP.
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