Economic growth is the improvement of living standards of a country, compared in one point of time to the other. It may be measured either in real or nominal (adjusted for inflation) currency. Economic growth can be regarded as the well-being of society at large. It is important to improve economic growth as a means of ensuring social progress and prosperity for the nation as a whole. This is done by ensuring jobs for all, paying decent wages to all workers, providing affordable public services, and invest to boost the nation’s capital stock.
GDP per capita is another way of measuring economic growth. This measures the improvement of living standards of a country, relative to the size of the economy. The larger the economy, the better the measure of economic growth is. Nominal gap refers to the value of economic growth per capita. Real gDP is the value of economic growth per unit of consumption, i.e., the value of a nation’s total product sold at the retail price level divided by its gross domestic product.
The key to ensuring a healthy climate for economic growth lies in maintaining a healthy population balance, with the least unemployment rate possible. Healthy population, meaning a minimal unemployment rate, plus high levels of labor productivity and economic growth, will guarantee a healthy climate. In addition, stable economic growth plus low inflation are necessary to reduce the risk of depreciation of any nation’s currency. This is achieved by low rates of interest, sufficient credit availability to businesses, and by having low trade balances with foreign governments.
The best indicator of economic growth is the gross domestic product growth rate, which is the current per capita economic growth. The best way to gauge this is to take the gross domestic product as current income and compare it to the potential growth of the economy. A key determinant of potential economic growth is the quality of education and infrastructure development. The size of the economy is also an important determinant of potential growth. Ultimately, if the gross domestic product growth rate is too low, or if the economy is not growing at all, then the economy is considered to be in recession.
On the contrary, if the GDP growth rate is too high, or there is too much unemployment, then this may mean that the economy is stagnant or in decline. A general indication of whether a country is on the upswing or downturn is its gross national product growth rate versus its potential growth rate. For instance, if the potential growth rate is two percent, then the gross national product growth rate is expected to be between two and three percent over the next year. Conversely, if the potential growth rate is one percent, then the economic growth rate is expected to be between zero and one percent in the same year. If the potential GDP growth rate is between zero and two percent, then the economy is considered to be in recession.
Economic concepts like cost of capital and market value of currency use this calculation. By looking at the value of an item as determined by these economic concepts, a company’s stock price can be expected to show depreciation over time. The concept of market value is used to determine the actual cost of an investment (the cost of buying an asset) rather than the current value of an asset. While a stock may still have a current value (the price that an investor will pay to purchase an investment), when discounted to its actual cost, stock prices are said to depreciate in market value. A company’s current asset value is equal to its total current cost of producing goods or services.
An important measure of economic growth is the output or value of the physical assets of a nation. The value of these physical assets, or the amount of surplus that is produced within a nation, is called gross domestic product. The concept of economic growth is closely related to that of the concept of inflation. The level of inflation in a country causes an increase in its currency, making the value of its currency higher than that of other nations’ currencies.
The value of human capital and the value of the wealth of a nation as a whole increases with economic growth. The quantity of human capital that is perishing represents a loss for a nation. If all the human capital that was employed in creating economic growth is lost, then a nation will not be able to increase its total economic activity. Performing the balance of capital deepening accounting studies is necessary to ensure that a nation’s balance sheet does not suffer a large loss. Performing this analysis is necessary because businesses need access to liquid capital that is needed to expand their operations. For example, if a business is established in a particular state but needs capital to expand its operations to other states, capital deepening accounting studies are required so that the entrepreneur can access the finance that he or she needs to expand the scope of the business.