Economists generally prefer to use the purchasing power parity (PPP) method when comparing incomes across countries
Brianna Mortel
“Economists generally prefer to use the purchasing power parity (PPP) method when comparing incomes across countries” (Gwartney et al, 2018). The tables in Chapter 17 demonstrate the differences in income levels and growth rates across the world. The most striking thing to me was how China and India were classified as low-income countries that have become the fastest-growing countries in the world since 1990. “Income per person in these countries has grown more than twice as fast as in the high-income industrial countries. These countries have not only closed the gap, but in a few cases, they now have higher income levels than many of their historically wealthier counterparts” (Gwartney et al, 2018).
Investment is an important source of economic growth. Countries that invest more, tend to grow more and achieve higher levels of income. It’s not a matter of already being rich and getting richer. It’s a matter of freer economies being able to invest more and thus getting richer. This in turn affects the poverty rates. Countries that aren’t as economically free, have higher poverty rates. These are then categorized as low-income developing countries. “This indicates that an institutional and policy environment consistent with economic freedom is an important ingredient of progress against poverty” (Gwartney et al, 2018).
The last two decades show that the United States is becoming less economically free. This can be attributed to several factors, according to Gwartney (2018): government spending, the legal system and protection of property rights, non-tariff trade barriers and restrictions on foreign investment. A country cannot grow if it does not have a free economy so, this will most certainly negatively impact the United States economy in the future.
Rules and restrictions imposed by political figures impacts the economy. “Countries that adopt sound institutions and policies will grow and prosper. Those that fail to do so will stagnate and regress” (Gwartney et al, 2018).
Resources
Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). Retrieved from https://www.cengage.com
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