Two Frameworks: The Long Run and the Short Run - The long-run growth framework focuses on incentives for supply - Sometimes called supply-side economics - Issues of growth are considered in a long-run framework - The short-run business cycle focuses on demand - Sometimes called demand-side economics - Business cycles are generally considered in a short-run framework - Inflation and unemployment fail within both frameworks Growth - Economists measure growth as changes in real gross domestic product which is the market Value of final goods and services produced in an economy, stated in the prices of aa given. Year - The U.S secular growth rate and the per capita real output growth have been less than 2.5 To 3.5 percent per year - Per capita real output is real GDP divided by the total population - Even if total output is increasing, the population may be growing even faster, so per capita Real output may fall. The Benefits and Costs of Growth - Per capita economic growth allows everyone in society, on average, to have more - Growth, or the prediction of growth, allows governments to avoid hard questions - Growth comes with costs - Pollution - Resource exhaustion - Destruction of natural habitat