What Is Economic Growth

Economic growth is the percentage increase in real national output in a given time period or a sustained increase in the productive potential of an economy.  Countries grow at different rates. Partly this is the simple fact that they are at different stages of their economic cycle. For example in 1999 the US economy was racing ahead but the Japanese economy seemed stuck in the mire of a prolonged slump.

But there are also supply-side explanations for differences in long-run average growth rates. This is why many economists now give increased attention to improving productivity and efficiency as a means to enhancing the growth potential of the Uk economy.

Measuring The Size of an Economy

• Gross Domestic Product (GDP) – is the most commonly used statistic and it’s measured at market prices (includes indirect taxes) and includes imports and exports.
• Gross National Product (GNP) – is equal to the GDP plus income earned abroad on investments and other assets minus income paid to foreigners on their investments

There are a number of problems with GDP:

• Prices have increased over time therefore an increase in GDP may simply signify an increase in the price level rather than the size of the economy.  Measuring GDP in real terms eradicates the effects of inflation and allows for comparison of figures over time.
• It is very difficult to compare GDP between nations, due to differences in prices in the countries, exchange rates, different patterns in spending etc..  It can be better to look at income per capita.
• Accuracy of information can vary due to the size of the black market or the way governments measure the GDP.
• An increase in population will lead to an increase in GDP, per capita information can rectify this problem.
• GDP takes no account of externalities.
• GDP doesn’t address how the income is distributed amongst the country’s population.

Further Reading

Economic Growth. A PowerPoint presentation
Economic Growth. A Review
Economic Growth. Key Facts
Economic Growth. Glossary of Terms
Economic Growth
Economic Growth. Multiple Choice
Economic Growth. Questions
Economic Growth. Internet Data Questions
An overview of National Accounting
Produced by the OECD, it provides us with a good description.
Purchasing Power Parity
An explanation of why purchasing power parity is used to compare different countries.
National Income
Produced by Geoff Riley at RGS Newcastle
GDP
GDP
National Income Accounts
Measuring Domestic Output, National Income And The Price Level. A PowerPoint presentation.
National Income Accounting Multiple Choice
Summary of National Income Accounting
National Income Accounting Questions
Internet Data Questions
UK National Income Accounts
Accounts dating from 1996
An overview of National Accounting
Produced by the OECD, it provides us with a good description.
Purchasing Power Parity
An explanation of why purchasing power parity is used to compare different countries.
GDP (Gross Domestic Product) for OECD countries
Percentage changes in volume from previous period, seasonally adjusted, at quarterly rates.
Annual comparison of levels of GDP per capita based on both exchange rates and on purchasing power parities.
Up to date information from the OECD