Factors That Affect Economic Growth Essay

717 Words Mar 26th, 2016 3 Pages
Numerous different factors impact economic growth. Economic growth gauges how well an economy is performing. It is measured by the rate of change of increases per capita of real gross domestic product (real GDP) within a year (Miller). It is important to understand that economic growth is measured in real GDP, not nominal GDP. Nominal GDP is expressed in monetary value whereas real GDP is measured in economic (values that have been adjusted for changes in the average price every year), thus, we use real GDP to be more accurate (Miller 188). Factors such as rate of saving, supply and demand and labor productivity all play a major role in economic growth. Economic growth relates to the output of an economy as a whole. Therefore, it is important to monitor and increase economic growth not only to improve the economy as a whole, but to also improve businesses and government financing. It is essential in improving governmental budget deficits. In addition, the economy’s standard of living also improves as an economy grows (Importance of Economic Growth). It is important that the economy grows every year. Although growing by one percent may not seem like helpful, overtime it will impact the economy greatly since it will compound. Compounding is defined as “the ability of an asset to generate earnings which are then reinvested to generate more earning” (Investopedia). In simpler terms, compounding generates earnings from previous earnings. For example, for over nearly four…

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