The term “Concept of Economic Growth” is thrown around a lot these days and is one of the most misunderstood. A good definition would be “the ability to secure enough natural resources and/or energy to support life”. In other words it defines the level of “bread-earnings” that an individual will be able to attain in their lifetime. The concept has been around for a long time and is a crucial component of economic theory – it is the road map that all economic systems must travel.
There are two main theories that define this concept: Utilization and elasticity. The first one is the one that says that the level of employment will determine the amount of goods and services produced, and that any increase in aggregate demand (the sum of all existing demand) will automatically lead to an increase in the supply. The second theory is that there will always be enough goods and services produced, and so any increase in aggregate demand will automatically lead to an increase in the supply.
Now you probably already know the major concepts behind the two concepts. It's important to recognize that the understanding of” Concepts of Economic Growth” is not as simple as it might seem at first glance. The concepts can overlap, and they can complicate quickly. So it's important to be aware of all of these nuances. The best way to start is to consider some of the most common notions and then investigate them in more detail.
The concept of elasticity involves an important assumption about the nature of money and credit. Suppose, for instance, that there is a standard interest rate on a loan. The concept of economic growth assumes that after the normal rate of interest has been reached, the money supply will always remain the same size. If the economy expands in size, the standard interest rate will adjust to reflect this, and the economy will have an “elasticity” of money relation.
The concept of elasticity can also be related to the concept of deflation. Deflation describes a situation in which the general price level is lower than it should be, usually because of excess production. It may take a long time, sometimes many years, for the price level to return to the level it would have been at prior to deflation. When it does, the general price level will be high, and the supply will be high. Deflation is thus a very short term scenario with significant long term implications.
The concept of economic growth is closely related to the concept of exchange rates. If a nation's dollar buys more foreign currency relative to . . . . . . its dollar, this is called a trade deficit. Deficiencies in foreign currency inflows mean that nations will have to pay more for imports, which in turn will reduce their domestic productions and lead to lower employment and consumer spending.
The concept of economic growth is intimately connected to the concept of exchange rate management. Inefficient exchange rate management will mean that a nation's currency will become more vulnerable to fluctuations in other nations' currencies. This will result in trade imbalances, which lead to less overall economic growth. The combination of the above two concepts can explain how many trade deficits occur in a time period and how difficult it can be to reverse them.
So, as you can see, the concept of economic growth has a lot to do with one another. These concepts are closely intertwined, and understanding them will not only help you understand the economic news, but will allow you to make informed decisions about what actions you should take in a given time frame. You might even find that you agree with all of them. That's a good sign!