Economic Growth

Topics: Economic growth, Gross domestic product, Economics Pages: 5 (1639 words) Published: March 4, 2013

Economic Growth

Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to obviate the distorting effect of inflation on the price of the goods produced. Economic growth typically refers to growth of potential output, i.e., production at "full employment". It talks about how countries can advance their economies. Economic growth is defined as a positive change in the level of production of goods and services by a country over a certain period of time. Economic growth is often desirable for a country as a whole. According to Ranis et al. (2000), economic growth and human development is a two-way relationship. Moreover, the first chain consists of economic growth benefiting human development with GNP. Specifically, GNP increases human development by expenditure from families, government and organizations such as NGOs. With the rise in economic growth, families and individuals will likely increase expenditures with heightened incomes, which in turn leads to growth in human development. Further, with the increased consumption, health and education grow, also contributing to economic growth. In addition to increasing private incomes, economic growth also generates additional resources that can be used to improve social services (such as healthcare, safe drinking water, etc.). By generating additional resources for social services, unequal income distribution will be mitigated as such social services are distributed equally across each community, thereby benefiting each individual. Thus, increasing living standards for the public. Concisely, the relationship between human development and economic development can be explained in three ways. First, increase in average income leads to improvement in health and nutrition (known as Capability Expansion through Economic Growth). Second, it is believed that social outcomes can only be improved by reducing income poverty (known as Capability Expansion through Poverty Reduction). Lastly, social outcomes can also be improved with essential services such as education, healthcare, and clean drinking water (known as Capability Expansion through Social Services).

Economic growth is also a long-term expansion of the productive potential of the economy. Sustained economic growth should lead to an increase in real living standards and rising employment.

Since economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure.


Sustained economic growth is a major objective of government policy – not least because of the benefits that flow from a growing economy and these are: Higher Living Standards – for example measured by an increase in real national income per head of population, Employment effects: Growth stimulates higher employment. The British economy has been growing since autumn 1992 and we have seen a large fall in unemployment and a rise in the number of people employed, Fiscal Dividend: Growth has a positive effect on government finances - boosting tax revenues and providing the government with extra money to finance spending projects, The Investment Accelerator Effect: Rising demand and output encourages investment in new capital machinery – this helps to sustain the growth in the economy by increasing long run aggregate supply and Growth and Business Confidence: Economic growth normally has a positive impact on company profits & business confidence – good news for the stock market and also for the growth of small and large businesses alike rising national income boosts living standards and an expanding economy provides the impetus for a...
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