From two perspective we can interpret economic growth of an economies (Mankiw & N. G. R. E. G. O. R. Y, 2014).
1. The most popular way to define economic growth as the total increase of output which an economy produce over a given period of time , but time constraints at least two year .
2. Secondly we can define economic growth as increase in what a nation can produce if it is using all the scarce resources it has. Economic growth can be shown by an outward shift in the economy’s production possibility frontier (PPF).
The simplest way to exhibit economic growth is to aggregate all goods into two basic heading named consumer goods and capital goods. If the production possibility frontier shift outward it means …show more content…
A stagnant economy may create a higher rates of unemployment and the consequent social misery. A relatively developed economy like the UK or US observes an average rise in productive capacity of 2-3% a year (Romer, 2011). So, even with slow growth of 1% or less, we may get a rise in extra capacity and increase in unemployment.
Economic growth is indispensable to improve government’s budget deficits.
If the proper management is in the place, economic growth helps an rise in resources for key public services such as education and health care. Economic growth allows an increase in social expenditure without an increase in tax rates.
HOW TO MEASURE ECONOMIC …show more content…
It helps to demonstrate the real trends of the economies.
Step-1: For calculating real GDP growth, we have to calculate real GDP of two periods on the basis of the price of base year (for considering inflation)
Calculating real GDP growth by using the following formula
Real GDP growth = [(real GDP of year 2 -real GDP of year 1)/real GDP of year 1]
ADVANTAGE OF USING GDP GROWTH AS ECONOMIC GROWTH
There are various advantages of using GDP growth method than other method. The most obvious benefit of it is easy to calculate than other method (Sims, 1994). The advantages for which economists use GDP growth technique are as follow:
1. GDP growth is used to measure the overall growth an economy.
2. GDP growth determines the overall purchasing power a countries y has over a given time period.
3. It helps to compare the overall wealth and prosperity of various nations,
4. It is an indicator of a country’s overall standard of living
DISADVANTAGE OF USING GDP GROWTH AS ECONOMIC GROWTH
Economists criticized GDP growth for following reason:
1. GDP growth method does not consider sustainable future growth of a nation.
2. Non-monetized activities are not included in