1. ECONOMIC GROWTH
What is economic growth?
By
Dimpho Bridgette Khiba
2. DEFINITION:
Economic growth is a sustainable expansion of
production possibilities measured as the increase in
real GDP over a given period.
Calculating Growth Rate:
Real GDP growth rate = real GDP in current year – real
GDP in previous year /real GDP in previous year x 100
3. The Standard of Living Over Time
Real GDP per person is real GDP divided by the
population.
Real GDP per person tells us the value of goods and
services that the average person can enjoy.
By using real GDP, we remove any influence that
rising prices and a rising cost of living might have had
on our comparison.
4. Other Uses and Limitations on Real
GDP
Economists use estimates of real GDP for three main
purposes:
Economic welfare comparison over time
Economic welfare comparison across countries
Business cycle forecasts
6. Economic welfare comparison across countries To make
international comparisons factors in addition to real GDP
must be used. Real GDP comparisons are major components
of international welfare comparison, and two special
problems arise in making these comparisons:
Real GDP of one country must be converted into the same
currency units as the real GDP of the other country.
The same prices must be used to value the goods and
services in the countries being compared.
7. The Basics of Economic Growth
Economic welfare is a comprehensive measure od the general
state of economic well-being. Economic welfare improves
when the production of all goods and services grows. Economic
welfare depends on many factors:
Over-adjustment for inflation
Household production
Underground economic activity
Health and life expectancy
Leisure time
Environmental quality
Political freedom and social justice
8. Business cycle forecasts
If policymakers plan to raise interest rates to slow an
expansion that they believe is to strong, they look at
the latest estimates of real GDP.
The fluctuations in economic activities measured by
real GDP tell a reasonable accurate story about the
phase of the business cycle that the economy is in.
