Economic growth implies the positive change or increase in the level of production of goods and services by a given economy or country over a certain period of time. Economic growth can either be nominal economic growth or real economic growth. Nominal economic growth in an increase in production which also include inflation.
Real economic growth in the increase in production excluding inflation. The nominal economic growth does not factor inflation and as such the growth is given in monetary terms in the market price whereas in the real economic growth, the growth is given in monetary terms but expressed in constants prices implying that the later expression does not suffer from the money illusion.
The differentiating between the real and nominal economic growth is important because the unit in which its expressed, that is monetary terms is subject to changes that make its value to increase or decline, making it less reflective on the real physical increase in goods and services produced in a given country over a specified period of time. Causes of economic growth Economic growth therefore from the definition can be perceived as the change in the country’s Gross Domestic Product, and for this matter an increase in the Gross domestic product.
From the expenditure approach of calculating the Gross Domestic product, the GDP is comprised of the sum of Consumption, investment, government purchase and also the net exports. The change in the components of the Gross domestic product is what that brings about the economic growth and this is according to QuickMBA Consumption is the largest component of the gross domestic product and it comprises the durable and non-durable goods and also services expenditure which are incurred by the ultimate users of the goods and the services.
The term ultimate user has been used so as to avoid the double counting problem which may arise when estimating consumption, because one firm’s output can be used as an input in the other firm, and for this reason a mistake may be done of recounting the output which was already counted implying double counting. Consumption is however not affected by value of the goods which are imported.
Investment implies the purchase of fixed assets which are expected to assist in the further production of goods and services, and also the increase in the inventory which means the increase in the number of goods and services that have been produced but not yet consumed. The inventories are perceived as being Investments because they are assets which are expected to be sold out for economic gain. The Investments are assumed to be financed by the savings that are made after the consumption.
The government purchases implies the summation of all government expenditures and then subtracting the government transfer payments. The transfer payments imply the payments made to transactions which did not contribute to the production of goods and services, therefore they are subtracted from the government expenditure because they did not contribute to the GDP. Net exports imply the difference between exports and imports in a specified period of time.
The imports are subtracted from the exports because imports are a kind of expenditure that is incurred but it does not benefit the locals, thus a form of cash outflow from the economy. Exports are included as part of the Gross Domestic product because the expenditure on them is likely to benefit the locals because the goods and services were produced in the country in question according to Barro and Robert . Therefore economic growth arises from the change in any of the components of the gross domestic product as illustrates above.
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Topic: The positive change
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