Factors that Contribute to economic Growth , Short / Long run Economic Growth, Factors that impact Economic Growth , Key Take away

1. SUBJECT : ECONOMIC DEVELOPMENT
TOPIC : Meaning Of Economic Growth
CLASS : T.Y.B.A Economics

3. Economic growth is an increase in the production of economic goods
and services, compared from one period of time to another. ...
Traditionally, aggregate economic growth is measured in terms of gross
national product (GNP) or gross domestic product (GDP), although
alternative metrics are sometimes used.
The "rate of economic growth" refers to the geometric annual rate of
growth in GDP between the first and the last year over a period of time.
This growth rate represents the trend in the average level of GDP over
the period, and ignores any fluctuations in the GDP around this trend.
Economists refer to an increase in economic growth caused by more
efficient use of inputs (increased productivity of labor, of physical
capital, of energy or of materials) as intensive growth.
In contrast, GDP growth caused only by increases in the amount of
inputs available for use (increased population, for example, or new
territory) counts as extensive growth.

4. Economic growth is an increase in the production of goods and services in an
economy.
Increases in capital goods, labor force, technology, and human capital can
all contribute to economic growth
Economic growth is commonly measured in terms of the increase in
aggregated market value of additional goods and services produced, using
estimates such as GDP.

5. LAND
Economic growth
only comes from
increasing the
quality and
quantity of the
factors of
production, which
consist of four
broad types
LABOR
CAPITA
L
ENTERPRENEUSHI
This includes any natural
resource used to produce
goods and services. This
includes not just land, but
anything that comes from the
land. Some common land or
natural resources are water,
oil, copper, natural gas, coal,
and forests. Land resources
are the raw materials in the
production process. These
resources can be renewable,
such as forests, or
nonrenewable such as oil or
natural gas. The income that
resource owners earn in
return for land resources is
called Rent.
Labor is the effort that
people contribute to the
production of goods and
services. Labor resources
include the work done by the
waiter who brings your food
at a local restaurant as well as
the engineer who designed
the bus that transports you
to school. It includes an
artist's creation of a painting
as well as the work of the
pilot flying the airplane
overhead. If you have ever
been paid for a job, you have
contributed labor resources
to the production of goods or
services. The income earned
by labor resources is called
wages and is the largest
source of income for most
people.
Think of capital as the
machinery, tools and
buildings humans use to
produce goods and services.
Some common examples of
capital include hammers,
forklifts, conveyer belts,
computers, and delivery
vans. Capital differs based
on the worker and the type
of work being done. For
example, a doctor may use
a stethoscope and an
examination room to
provide medical services.
Your teacher may use
textbooks, desks, and a
whiteboard to produce
education services. The
income earned by owners
of capital resources is
interest.
An entrepreneur is a person who
combines the other factors of
production - land, labor, and capital -
to earn a profit. The most successful
entrepreneurs are innovators who
find new ways produce goods and
services or who develop new goods
and services to bring to market.
Without the entrepreneur combining
land, labor, and capital in new ways,
many of the innovations we see
around us would not exist. Think of
the entrepreneurship of Henry Ford
or Bill Gates. Entrepreneurs are a vital
engine of economic growth helping to
build some of the largest firms in the
world as well as some of the small
businesses in your neighborhood.
Entrepreneurs thrive in economies
where they have the freedom to start
businesses and buy resources freely.
The payment to entrepreneurship is
profit.

6. An example of this is the invention of gasoline fuel; prior to the
discovery of the energy-generating power of gasoline, the economic
value of petroleum was relatively low. The use of gasoline became a
better and more productive method of transporting goods in
process and distributing final goods more efficiently. Improved
technology allows workers to produce more output with the same
stock of capital goods, by combining them in novel ways that are
more productive.
Like capital growth, the rate of technical growth is highly
dependent on the rate of savings and investment, since savings and
investment are necessary to engage in research and development.

7. The business cycle refers to economy-
wide fluctuations in production, trade,
and economic activity over several
months or years. The short-run
variation in economic growth is called
the business cycle. Economists use it to
distinguish between short-run
variations in economic growth and long-
run economic growth. The cycle is made
up of increases and decreases in
production that occur over months and
years. The changes in the business cycle
are a result of fluctuations in aggregate
demand.

8. Long-run economic growth is measured as the percentage rate increase in the real gross domestic
product. The GDP is defined as the market value of all officially recognized final goods and
services produced within a country in a given period of time. There are three approaches used to
determine the GDP:
 Product (output) approach: adds together the outputs of every class of enterprise to provide the total.
In principle, all of the approaches should yield the same result for the GDP of a
country.
For example, the equation for the expenditure approach is: GDP = C + I + G + (X – M).
Written out in full, the gross domestic product (GDP) equals private consumption (C) plus, gross
investment (I), government spending (G), and the exports minus the imports (X – M).
 Expenditure approach: the value of the total product must be equal to the people’s total expenditures.
 Income approach: calculates the sum of all the producers’ incomes.

9. There are specific factors that have a direct impact on the economic
growth of a country. Every country is unique based on population,
technology, government, wealth, etc. Economic growth can be compared
between countries, although no two countries are the same. Some of the
factors that impact economic growth include:
 Growth of productivity
 Demographics
 Labor force participation
 Human capital
 Inequality
 Trade
 Quality of life
 Employment Rate

10. The growth of productivity is the
ratio of economic output to
input (capital, labor, energy,
materials, and services). When
productivity increases the cost of
goods decreases causing an
increase in the per capita GDP.
Lower prices create an increase
in higher aggregate demand.
The growth of productivity is the
driving force behind economic
growth.

11. Demographics change the
employment to population ratio
as well as the labor force
participation rate. The age
structure of the population affects
the labor force participation rate.
For example, when women
entered the workforce in the U.S.
it contributed to economic
growth, as did the entrance of the
baby boomers into the workforce.

12. The rate of labor force participation impacts economic growth. It is
the number of people working in the labor force. When
manufacturing increased, it created a higher productivity rate, but
lowered the labor force participation, prices fell, and employment
shrank.

13. Human Capital is referred to as the skills of the
population. Education is a commonly used
measurement for human capital. Human capital
increases the society’s skill which increases
economic growth.

14. Inequality in wealth and
income has a negative impact
on economic growth. Inequality
results in high and persistent
unemployment. This has a
negative effect on long-run
economic growth.

15. International trade
represents a significant part
of GDP for most countries. It
is the exchange of goods and
services across national
borders.

16. Happiness has been shown to increase with a higher GDP per capita.
Quality of life is a direct result of economic growth. When poverty is
alleviated and society has access to what it needs, the quality of life
increases. Consistent quality of life leads to continued economic
growth.

17. In order for the employment rate to have a positive impact on
economic growth there must also be increases in productivity. If
employment increases, but productivity does not, then there is a
higher number of working poor.

18. − Mercantilism – Wealth of a nation determined by the accumulation of gold and running trade
surplus
− Classical theory – Adam Smith placed emphasis on the role of increasing returns to scale
(economies of scale/specialisation)
− Neo-classical-theory – Growth based on supply-side factors such as labour productivity, size of
the workforce, factor inputs
− Endogenous growth theories – Rate of economic growth strongly influenced by human capital
and rate of technological innovation
− Keynesian demand-side – Keynes argued that aggregate demand could play a role in
influencing economic growth in the short and medium-term. Though most growth theories
ignore the role of aggregate demand, some economists argue recessions can cause hysteresis
effects and lower long-term economic growth
− Limits to growth – From an environmental perspective, some argue in the very long-term
economic growth will be constrained by resource degradation and global warming. This means
that economic growth may come to an end – reminiscent of Malthus theories.