People are reasonably good at forming estimates based on addition, but for operations such as compounding that depend on repeated multiplication, we systematically underestimate how quickly things grow. As a result, we often lose sight of how important the average rate of growth is for an economy. For an investment banker, the choice between a payment that doubles with every square on the chessboard and one that doubles with every other square is more important than any other part of the contract.
All businesses operate within a competitive environment. However, the nature of competition varies from industry to industry.
A key part of the economic environment is the strength of the macro-economy. Macroeconomics is mainly concerned with:
- Levels of employment and unemployment
- The total investment made by businesses and government
- The general level of prices
- The rate of interest and exchange rates
The strength of the economy is always changing, although broad movements take time to occur. The level of activity in an economy can be measured in several ways, but the most common way is to look at the value of gross domestic product (shortened to “GDP”) (the main measure of economic activity) in each period.
GDP is commonly used to measure economic growth and is made up of several parts:
The formula for is: GDP = C + I + G + (X − M)
G (Government spending)
and X − M (Net Exports)
Economic growth is an increase in the value of goods and services produced by an economy over time.
There are two main ways to measure economic growth:
|Actual growth (GDP)||Potential growth (trend growth)|
|The percentage annual increase in a country’s real gross domestic product over a period of time||The long run expansion of an economy’s productive potential|
|The % annual increase in national output||The increase in the capacity of the economy to produce|
|Caused by an increase in aggregate demand||Caused by an increase in aggregate supply|
|Potential output is that which could be produced if there was full employment of resources|
Economic growth is a vitally important measure for several reasons:
- Economic growth is about an increase in production within the economy
- It is important because our living standards are influenced by our access to goods and services
- Without growth, individuals can only enjoy rising living standards at the expense of others in society
- With economic growth we can all (potentially) be better off
Why economic growth is important for businesses
Economic growth provides greater potential or opportunity for:
- Increased profits
- A rise in average living standards
- The creation of new jobs
- Lower unemployment
- Increased tax revenues for government – used to fund more spending on government services
- Improved business confidence
Related Economics Paper:
Popular Economics Paper:
Introduction The major objectives of planned development have been increased national income, rural development, self-sufficiency in food, and increased industrial production. However, progress in achieving development goals has been slow. Political turmoil and untamed natural hazards of cyclone .....
INTRODUCTION The shift from a rural/agro based economy to an urban/industrial economy is an essential part of the process of economic development. Although policymakers in the least developed countries (LDCs) have, at various times, attempted to make agriculture the primary engine of economic gro.....
E-commerce Concept E-commerce is a narrower part of e-business dealing with the purchase and sale of goods and services over the internet, including support activities such as marketing and customer support. The ability to made transaction for personal or professional use over the internet is kno.....
Rostows Development model Creator: Walt Whitman Rostow 1916-2003 was an American economist who proposed his five stage model of development in the 1950’s, the ideas of which stemmed from modern free trade and Adam Smith. Rostow’s model does not deny John Maynard Keynes in that it allows for a.....
Bangladesh is an agricultural country. With some three-fifths of the population engaged in farming. Jute and tea are principal sources of foreign exchange. Major impediments to growth include frequent cyclones and floods, inefficient state-owned enterprises, inadequate port facilities, a rapidly .....