Example Of Economic Growth Essay
Economic growth can be simply described as an increase and enhancement in the capacity of a financial system to manufacture goods and services. This growth is evaluated by comparing two time periods. The measurement of economic growth relies on supposed terms including inflation. In addition, it can also be measured in real terms that are usually brought in sync for inflation. In order to compare the economic growth of a country to another country, GNP or GDP are used as the differences in the populations of these countries are taken into account through their employment. It is worth-mentioning that technological changes have a close association with the growth of an economy. The best example in this regard is that of the United States of America where economy grew during the Internet introduction and the related technology. It can be said that the economic growth is not only assessed through the productive capacity increase but economists also analyze the quality of life of the respective people and the improvements made in it.
Methods of Economic Growth Measurement
Economic growth can be measured in two distinct ways i.e. Gross National Product (GNP) and Gross Domestic Product (GDP). Gross National Product (GNP) can be defined as a country’s total worth of services and goods during a given year. It is more or less equivalent to the summation of average earnings from overseas funds added to Gross Domestic product. On the other hand, GDP can be defined as the sum of goods and services generated and provided within a country on an annual basis. As far as the estimation of GNP is concerned, only the final value of a product or service is considered and counted. For instance, only the automobiles’ net worth is counted and not the materials that are contained in them. However, GDP is widely acknowledged as a better way to measure economic growth and performance of a country as it only evaluates the production of goods and services within the boundaries of a nation (“Gross National Product”, 2014).
Determinants of Economic Growth
In general, the determination of long-run economic growth rate is dependent on three components that include labor productivity, human capital, and technology. To begin with, labor productivity is the measurement of the total production of goods or services that a worker can generate. In most cases, hours are considered in measuring the labor productivity of a worker. Almost every economist is of the same opinion concerning the three things that drive efficiency and output of a worker: technological advancement, physical capital, and human capital. On the other hand, human capital is the measurement of the skills or knowledge possessed by an individual. Human capital tends to increase when an individual trains himself for a specific skill or goes to an educational institution for the acquirement of knowledge. It is a universally acknowledged fact that people who are more skillful and more intelligent are capable of producing more goods and services as compared to unskillful and untrained people. Lastly, the importance of technology cannot be underestimated while considering and determining the rate of economic growth. This is because the technological changes or technological improvements within a given industry or business determine the efficiency and output of workers ultimately affecting the overall economy in a positive manner. The significance of physical capital cannot be ignored as well as the investment in technology and other aspects determine the increase in growth rate of an economy.
The Role of Government in Economic Growth
The rate of an economy’s growth is excessively dependent on the performance of a government as well as the measures it takes for the consistent stimulation of the economy. Governments can influence their respective economies through the implementation of two principal ways. These include the proper introduction and implementation of fiscal policy and monetary policy. As far as fiscal policy is concerned, it directly refers to the budgets of a government. It also highlights the deficit or surplus of the budgets. A fiscal policy encompasses the promotion of economic development and economic growth as a significant objective. In addition, it can also contribute as a major stimulant to increase the savings’ rate in a financial system through the provision of savings incentives. In case of the slow progression of economic growth, a government can help in the stimulation of economic growth by “running a budget deficit (spending more money than the government takes in through taxes)” (D'Anieri, 2010). On the other hand, monetary policy is associated with the ability of a government to manipulate and control over the economy and interest rates.
The efficient utilization of capital by government also needs to be accompanied by the employment of competent and proficient workers. An economy’s productive capacity must be increased by the effective and smart investment in human capital. However, it must be remembered that “the extent to which this occurs is influenced by the appropriateness and the quality of the investment” (Grant & Vidler, 2003). The governments are required to play a key role in the development of the essential skills in the national workforce to compete in the world market. This is because low training levels, outdated and obsolete educational standards, as well as staying-on rates inflict a negative influence on the economic growth of a country.
D'Anieri, P. (2010). International Politics: Power and Purpose in Global Affairs. Belmont, CA: Wadsworth Cengage Learning.
Grant, S., & Vidler, C. (2003). Heinemann Economics for Edexcel. Oxford: Heinemann Educational.
Gross National Product. (2014, January 1). Retrieved February 23, 2015, from https://www.questia.com/read/1E1-grossnat/gross-national-product
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