Economic Growth

Economic Growth

What is meant by economic growth?

Economic growth is an increase of the in the real level of output. It refers to an increase in a countries annual output of goods and services. The most common measure of this is G.D.P. Economic growth figures must be corrected for inflation. Nominal G.D.P. is not adjusted for inflation whereas real G.D.P. is.

Economic growth is also a long-term expansion of the productive potential of the economy. Sustained economic growth should lead to an increase in real living standards and rising employment.

Explain the differences between an economic recession and an economic boom.

An economic recession and an economic boom are best described using the diagram of the economic cycle as shown below.

There are four important stages. The slowdown towards the recession and the recovery towards a boom.

They are both opposites to each other. A recession is a period when a country's economy is less successful and more people become unemployed. Whilst a boom is the peak of a countries economy and it is at its most successful. We see a recession on the diagram when the real GDP goes down and not up. When it at the furthest down it is going to go and it goes back up, it is called the trough of recession. Whilst the boom is when GDP is at its highest it is going to go before it will drop. This is called the peak of the boom.

Why is investment important to the UK economy?

Investment is when money from profits made are used to buy products that aid production in order to increase the quality or quantity of the output. Investment is normally in new capital. This will increase output from normal and also mean that they would be getting more out than they were putting in. The UK economy at the moment is not as productive as the Japanese or the American economy. The Japanese invested loads of money into new modern capital after the World War 2. This is why they are doing well. Whilst American productivity is twice that of the UK. This is because the Americans had recently over time invested a lot into buying new capital to the point that they now have too much.

The UK economy is suffering, as they have not spent much in recent years investing in capital. The capital they use now, are old and not as efficient as what the other countries have. The two most economically powerful countries in the world both have modern capital and the UK is slowly falling further and further behind them. This is why it is necessary to rebuild the UK economy to its old stature when the UK was the strongest power in the world.

What are the main advantages and disadvantages of economic growth?

The main advantage of economic growth is that it improves living standards. (As measured by real G.D.P. per capita) Then Growth also stimulates higher employment levels. Economic growth also has positive effects on government finances because of government benefits. The last significant advantage of economic growth is that it