There is one question that I have been asked a lot and it is “How does the meaning of economic growth differ between the US and Europe?” My answer to this is that there are some very important differences that you need to look at. The first thing to note is that there are three distinct phases to an economic cycle. They are called accumulation, expansion and diffusion. Let us look at each individually so that you can understand the meaning better of the term.
Accumulation – this is when the economy experiences an increase in total output or production. It is a positive term, because an economy is expanding and becoming more productive. The process may be slow but overall there is an increase in the level of economic activity.
Accretion – this is when the amount of money being spent is adding up to a surplus. This is also positive for the economy as it indicates that inflation is low. As more money is being pumped into the economy, the demand for goods and services rises, which leads to an increase in employment and rising prices. When inflation starts to rise, it is considered to be the accumulation phase. The inflation rate is usually expressed as a percentage rate over a period of time. In addition to this, the Federal Reserve is often directed to intervene in the market to increase interest rates if inflation starts to rise.
Expiry – this is when all the existing goods and services have been bought. It is the opposite of accumulation because a good is being sold to make room for more. An economy that is in a deficit is basically where there is less spending by individuals. The central bank tries to eliminate the deficit by any means necessary and this includes increasing interest rates and even increasing the monetary base. However, this will result in increased inflation as all goods and services will have to be purchased at a higher price in order to cover the deficit.
Investment grade – this refers to money that is issued in the form of bonds, stocks and other assets. All assets are either invested in cash or on securities. Cash represents current consumption whereas equities represent future wealth. When money is invested in securities then this represents future income. Therefore, a high investment grade indicates that the economy is on the right track and that there is potential growth in the future.
Economic balance – This is usually denoted by the Federal Reserve Bank of America as the balance of trade. This is the difference between actual export and import. When there are excess export and import, this indicates a possible imbalance in the economy. This can be caused by excessive consumer spending or excessive investment and if the balance of trade is negative then the economy is said to be in recession.
Nominal economic growth – This is an economic term that is used to explain the way prices of goods and services are measured in the economy. It measures how much a particular good or service costs in relation to other goods and services of a similar nature. The more current the services, the more the nominal economic growth.
These are just some of the most commonly understood concepts about economics. If you wish to know more about them, then you can use the Internet, which has a multitude of resources and articles on economics. If you need help with your research, you can consult an adviser at your local university or use a bookstore that has a wide range of economic textbooks and reference books. You can also talk to an economic expert in your area so as to understand further the meaning of economic growth and its significance in the real world.
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