Economic growth is the ability of an economy to produce more services and goods in a particular period when compared to another time. An economy is said to have growth if the goods and services that are produced now are more and better than the once which were produced previously. When the economy is stable, business and companies become more profitable, and the prices of the stock markets increase. When stock prices increase, it provides companies and business capital money to invest in the latest technology and hire more skilled labors to produce better services and products.
Importance of economic growth:
One can say that a country has a healthy economy by looking at its economic growth. The national income is greatly dependent on the level of employment in a country. As the level of employment increases, the standard of living increases. When there is better GDP, you can understand that that economy has better employment rate and thus it increases the wealth of the country. As an economy grows, the government would require higher tax to maintain various things and develop the country. Only when there is economic growth, you will be able to eliminate poverty from a county.
How is the economic growth measured?
The growth of the economy is measured by GDP (Gross Domestic Product). The GDP takes the economic output of the entire nation and measures the final production. It does not matter if the services or business is done overseas or domestically. The economy includes the exports that are made, and the imports are subtracted. Most of the nations around the world measure its economic growth every quarter, and the GDP is used to compensate for the effects that are caused due to inflations.
The gross domestic product does not include services like child care, black market activities, unpaid work like social services and it also does not cut down environmental costs. For example, GDP does not take into consideration the cost it would take to dispose of plastic, and thus plastics are sold at a cheap rate.
Factors that affect economic growth:
Natural resource of the nation:
When a nation has plenty of natural resources like coal, oil, minerals etc. the economy of that country tends to be more stable than others who do not have such resources. As natural resources are quite hard to replenish, the nation must take measures to balance the supply and demand of these natural resources. Through various land improvements, this balance can be maintained.
When physical capital is there in a country, it will be able to produce more goods, and as more products are produced, more export can be done to other countries.
When the population is high, there will be a better workforce, but the downside to this is that it can even lead to underemployment.
If a country is advanced in technology, it will have good economic growth. Technology can maximize productivity even without the need for labor.