Economic Growth

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)

where

C (Consumption)

I (Investment)

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 timeThe long run expansion of an economy’s productive potential
The % annual increase in national outputThe increase in the capacity of the economy to produce
Caused by an increase in aggregate demandCaused 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

 Economic Growth

Related Economics Paper:

Popular Economics Paper:

Recessionary Gap

Recessionary Gap is a situation wherein the real GDP is lower than the potential GDP at the full employment level. This is a situation wherein the real GDP is lower than the potential GDP at the full employment level. The economy operates below the full employment level in a recessionary gap. &nb.....

Presentation on Regional Economic Integration

Principle purpose of this lecture is to presentation on Regional Economic Integration. Here briefly explain on levels of economic integration among nations, Economic and political arguments for/against. Here also discuss on History/scope, scope and future prospects for: EU, NAFTA, MERCOSUR and A.....

Presentation on National Differences in Political Economy

Basic purpose of this lecture is to Presentation on National Differences in Political Economy. This lecture briefly explain how do political, economic, legal systems of a country. Here also discuss on how Political Economy differ among countries, influence economic progress, change during our t.....

Discuss on Reasons behind Fluctuations in Gas Prices

Prime purpose of this article is to Discuss on Reasons behind Fluctuations in Gas Prices. Here explain Fluctuations in Gas Prices in USA market perspective. There are some factors that affect Gas Prices world wide. They include international crude oil prices, the expense of processing the elem.....

Research on Tourism Development of Bangladesh

The main purpose of the research is to evaluate or create exiting understanding, review and investigate existing situation or problems, find out the appropriate solutions to the problems as well explain new idea and generate scope of further research. Research on the issues on tourism sector is t.....