Economic growth defined as an outward shift that occurs in the Production Possibility Curve (PPC) in an economy. In simpler terms, it can also be defined as the increase which occurs in the inflation-adjusted market value of various services and goods produced by a particular economy over some time. According to experts, economic growth measured in a convenient manner as the percent rate of increase that takes place in terms of real Gross Domestic Product (GDP). It is important for an individual to remember that economic growth measured in real terms or inflation-adjusted terms. This is done to eliminate any distorting effect of inflation that could take place on the price of goods that have been produced.
To measure the economic growth of any particular nation, the national income accounting of that nation is used. There are many advantages and drawbacks of economic growth. This is because of the fact that it is measured as an annual percent change that occurs in the Gross Domestic Product (GDP). It is important for a student to learn about this topic. But students are not able to do that as they also have to work on assignments. This is why it is suggested that students should hire online assignment help from the best essay writer.
Understanding Economic Growth And Its Types
As it was mentioned above, economic growth is defined as an outward shift that takes place in terms of the Production Possibility Curve (PPC) of a nation. The economic growth of any particular nation is measured in terms of its total output or the real Gross Domestic Product (GDP) of the nation. According to experts, the Gross Domestic Product (GDP) is also known as the Gross National Product (GNP). It can be defined as the total amount of goods and services that are produced within the country or nation over a particular period of time. Hence, it can be stated that if there is an increase in the GDP of a country then that roughly translates to an increase in the total production of that country.
It is also important to remember that the economic growth of any country would never occur in isolation. Instead, the growth prospects of a nation are affected by events that take place within a country and its regions.
Developing nations also experience bigger economic growth than developed nations. For example, in 2016 the economic growth rate of India was 7.1% while for the United States of America the economic growth rate was 1.6% even though India’s GDP was $2.264 trillion and the GDP of the United States of America was $18.57 trillion. This should answer the question of why GDP is used to measure economic growth. One should also know that economic growth is a different concept from economic development. There are also different types of economic growths. And some of those different types of economic growths are mentioned below.
The Boom and Bust Business Cycles
This type of economic growth often leads to recessions as the overall growth of the economy is inflationary and occurs at a very high speed. This level of growth is unsuitable but is usually a part of the business cycle.
Economies such as those of China and Japan have experienced this type of economic growth due to the high current account surplus. This type of economic growth refers to more export than imports.
This type of economy is dependent on consumer spending to stimulate the growth of the economy. This also leads to a higher current account deficit. The United States of America has this type of economic growth.
The Commodity Exports
This type of economic growth is completely dependent on the natural resources of a nation like iron ore and oils. A good example of this type of economic growth is in Saudi Arabia due to its oil exports. These types of economies face difficulties when the prices for their commodities fall.
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The Importance Of Economic Growth
The primary reason why economic growth is important is that it acts as an indicator of a healthy economy. It further allows a nation to feel a positive impact on the employment levels and national income. This helps in improving the standards of living. An improving GDP also indicates that people are being employed which leads them to become more productive. This improves the wealth of the country and its population.
Higher economic growth also means that the government can have an extra tax income for spending. This can be used to further develop the economy and decrease the budget deficit. Economic growth can also decrease poverty and also improve the economic development of a nation. It is also important to remember that economic growth alone cannot help in reducing poverty. There are other factors that must also come into the total picture if everybody aims to reduce poverty.
The Causes Of Economic Growth
There are primarily six factors that can improve the economic growth of a nation. And those six factors mentioned below.
If more natural resources like oil, metal, and forest product discovered within a nation then, that can help in improving the economic growth of that nation.
Looking at Physical Capital or Infrastructure
The overall costs of economic activities can be decreased by investing more in physical capital or infrastructures like factories, roads, and machinery. This roughly translated means higher economic growth.
The Total Population or Labor
A growing population signals that the availability of workers also increases. This signals a better economic growth.
The Overall Human Capital
The quality of the labor force can be improved if the total amount of human capital is also increased. This further means an improvement in skills, training, and abilities. This means better economic growth.
If an improvement in technology occurs within a nation or country then that directly correlates to better economic growth.
There should be specific rules and regulations that regulate economic activity. This would help in promoting economic growth.
The Factors That Limit Economic Growth
There are also some factors that could limit the economic growth of a nation. And some of those factors mentioned below.
- Low levels of education
- Poor health
- Lack of required infrastructure
- Flight of capital or investments
- Instability in politics
- Inadequate institutional framework
- The bias of the World Trade Organization (WTO)
The Cost Of Economic Growth
It is also important for an individual to remember that economic growth does not just mean everything positive. There are also costs of economic growth. And those costs come in terms of environmental degradation and the rising income inequality amongst the population. It is important to tackle these issues at the right time.
Economic growth defined as the overall growth in the inflation-adjusted market value of different services and goods produced by the nation over a particular period of time. There are different types of economic growths including the consumer, the commodity export, and export-led. Economic growth measured in terms of GDP and it helps in understanding if an economy is healthy or not. There are also other benefits of measuring economic growth in terms of GDP.