ECONOMIC

GROWTH
ASSIGNMENT 1

SUBMITTED BY:
DIVYA DHAWAN
B.ED, 1ST YEAR, SECTION-C
ECONOMIC GROWTH

INTRODUCTION
People are reasonably good at forming estimates based on addition, but for
operations such as compounding that depend on repeated multiplication, we
systematically underestimate how quickly things grow. As a result, we often lose
sight of how important the average rate of growth is for an economy. For an
investment banker, the choice between a payment that doubles with every
square on the chessboard and one that doubles with every other square is more
important than any other part of the contract.

All businesses operate within a competitive environment. However, the nature

of competition varies from industry to industry.

A key part of the economic environment is the strength of the macro-economy.

Macroeconomics is mainly concerned with:

 Levels of employment and unemployment

 The total investment made by businesses and government

 The general level of prices

 The rate of interest and exchange rates

The strength of the economy is always changing, although broad movements
take time to occur. The level of activity in an economy can be measured in
several ways, but the most common way is to look at the value of gross
domestic product (shortened to “GDP”) (the main measure of economic activity)
in each period.

WHAT IS GDP?
GDP is commonly used to measure economic growth and is made up of
several parts:

The formula for is:

GDP = C + I + G + (X − M)

Where,

C (Consumption)

I (Investment)
 G (Government spending)

and X − M (Net Exports)

Economic growth is an increase in the value of goods and services

produced by an economy over time.

HOW TO MEASURE ECONOMIC

GROWTH?
There are two main ways to measure economic growth:

Actual growth (GDP) Potential growth (trend growth)

The percentage annual increase in a country’s The long run expansion of an economy’s
real gross domestic product over a period of productive potential
time
 The % annual increase in national output The increase in the capacity of the economy to
produce

Caused by an increase in aggregate demand Caused by an increase in aggregate supply

Potential output is that which could be

produced if there was full employment of
resources

SIGNIFICANCE OF ECONOMIC GROWTH

Economic growth is a vitally important measure for several reasons:

 Economic growth is about an increase in production within the economy

 It is important because our living standards are influenced by our access to
goods and services
 Without growth, individuals can only enjoy rising living standards at the expense
of others in society
 With economic growth we can all (potentially) be better off

Why is economic growth important for businesses?

Economic growth provides greater potential or opportunity for:

 Increased profits
 A rise in average living standards
 The creation of new jobs
 Lower unemployment
 Increased tax revenues for government – used to fund more spending on
government services
 Improved business confidence
THANKYOU