Economic Growth
Economic GrowthEconomic Growth is defined as the way that the real income of an economy increases over time. This generally signifies that the economy is wealthier and producing more, individuals are better off, and that living standards are higher.
A more technical definition would go into the way that Economic Growth is measured - usually in terms of the Gross Domestic Product - the sum total of the value of a country’s output over the course of a year. However GDP figures can be misleading - for example, a growing economy may have rising output levels but also may have a growing birth rate which negates any positive effect on the standards of living. Alternatively, figures that show clear growth in terms of wealth may be ignoring the fact that inflation rates are rising also, thereby negating the power of said growth.
Normally, Real Income as used when looking at Economic Growth takes the GDP figures and then takes out the effect of inflation rates (by forming an index) thereby creating a reasonable set of statistics from which to draw conclusions.
Economic Growth is clearly seen as a desirable objective for all economies. It is obviously important for the UK to keep growing at a similar rate as other rich economies globally, in order to remain competitive in terms of trade. The main advantages of economic growth include:
a) Higher levels of Employment – or lower unemployment, however you look at it! An economy where demand is rising and businesses are growing is likely to have in it ample capacity to employ more and more people in its growing industry.
b) If growth leads to higher employment and higher wages, then it follows that Gov’t tax revenues increase also. This might allow the Gov’t to replenish some of the Budget Deficit.
c) Living Standards – tend to improve in a growing economy. Living Standards are generally measured in real GDP per capita, so if Real GDP really is increasing positively against the birth rate, it follows that at least on paper, living standards would improve! However, derived wealth such as that gotten through (fast) economic growth, is not always evenly distributed, so an increase in living standards might be optimistic generalising in a way.
Other benefits include increased opportunity for investment, increased business success and confidence (especially overseas), etc.
Reasons for growth are complex and numerous. Basically, Growth comes about as a result of the increased efficiency in the use of resources or Factors of Production. There are a few factors that can directly affect the levels of growth.
Firstly, Investment. Capital Investment into a firm or an economy provides the opportunity for development, expansion, research, and possible higher levels of Productivity. This ties in with the second, Technological Advances. These lead to the availability of better equipment, which improve the manufacturing of goods or services, or help to create better ways of managing jobs and people. Investment can also be stretched to link...
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