Economic growth defined as increasing the capacity of an economy. It used to produce goods and service which compared from one period of time to another. Also, it measures the change of real national output in short period. Whereas, long term growth shown to increase the potential Gross Domestic Product (GDP). Thus, economic growth plays an important role in the entire nation.
Thirdly, the prices of raw material also will influenced the inflation. For example, if the key inputs such as increase in the price oil, producers have to adjust the output supply or increase the price of the outputs in the market in order to overcome and cope with the rising price oil. When output decline and the price of the output rise, the cost push inflation occurs. Moreover, if the firms become less productive, it allows costs to rise and invariably leads to higher prices. This is because firm used a lot of time to produce the products.
But since the government wants to pursue it, it would help increase employment and economic growth (vice versa of what is mentioned before). Looking at the diagram above, as the economy expands beyond the normal output, there is pressure on resources and prices rise. In the long run, the economy cannot be above potential output, so this all becomes an increase in price.
The increase disposal income enables households to spend some of this extra income on purchasing goods and services expanding companies supply rates or spend the income on investments, thus creating the supply for job opportunities and sometimes save the remaining income. Their increased spending leads to a larger consumption in the aggregate economy facilitating the circular flow of income. Companies that produce the much-needed goods and services for the increased demand have to subsequently increase their production. An increase in production to cater for the growing demand for goods and services may result in the supply for job opportunities increasing taxes remitted to the government. All these translates in the further increase of income levels and output in the economy.
Of more importance is the growth of the ratio of GDP to population (GDP per capita), which is also called per capita income. An increase in per capita income is referred to as intensive growth. GDP growth caused only by increases in population or territory is called extensive growth. Growth is usually calculated in real terms – i.e., inflation-adjusted terms – to eliminate the distorting effect of inflation on the price of goods produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment".
If the economy is overheated then the reverse strategy can be employed. Other changes to fiscal policy should be simultaneously pursued, that would have been more successful. Public spending, it is the most potent weapon to raise the consumption and to increase the economic growth. Increased government expenditure will open new job opportunities in the economy, which means creation of demand for goods and services. It can lead to pump priming, which means increase in private expenditure through an injection of fresh purchasing power in the form of an increase in public expenditure.
Growth in economics refers to economic growth of a country and it means an increase in the market value of services and goods produced by a country over a period of time. Whatever the meaning is taken, both inflation and growth are closely related and dependent on each other and a proper balance should be established. When the money supply increases in the market then disposable income increases in the economy and demand for goods increases by customer. But due to
An increase of investment and consumption will drive up the output of the economy and increase job opportunity, while it may seems like an excellent plan, however, inflation will eventually take place as the consumption overlaps the supply of goods and the general price will then increase. In the meantime, to achieve a stable price level, government will need to increase interest rate and reduce spending that will reduce the consumption and investment, hence, slowing down the economics growth (Mankiw, 2012). 1.3.3 Economics Growth & Equilibrium of BoP Economics growth will encourage the consumers to increase their consumption by reducing taxes, increasing government spending and other factors. The greater the economy growth, the greater the purchasing power, and this signified greater consumption on imported goods. The higher marginal propensity of import will lead to the deficit in the BoP.
Growth can be defined as an increase in the value of goods and services produced in the country over a period of time. Growth is measured in the Real GDP (Gross Domestic Product), the health of an economy. Real GDP represents the total dollar value of goods and services produced over a specific time period. The Benefits of economic growth is, an increase in production so a wider range of goods and services available for the consumers. An increase in investment, increase in sales, revenues and profits.
Business must hire more employees and further increasing demand by increasing wages. The increased demand will face of shortage supply and quickly forces prices up. However, the GDP of country growth too rapidly also will negatively affect such as inequality of income increases to a significant level. This problem frequently facing due to economic development. This will let the rich people are getting more richer and poor are becoming poorer.