The long term economic growth rate is basically the gross domestic product, or G.D.P., of an economy. It can also be referred to as the level of living standards of its people. The U.S. economy has a long-term economic growth rate of around 3%, which has been called the American dream.
There are many factors that contribute to determining the long-term economic growth rate of a country. The rate at which national income is shared between the beneficiaries of various tax schemes, such as employee social security and payroll taxes and capital gains and dividends tax, is also considered to be relevant. In addition, the level of investment in physical assets like land, equities, and machinery, and the infrastructure are also a relevant consideration. And, government spending and government regulation are also important considerations for setting the long-term economic growth rate.
Economic textbooks often refer to long term economic growth rates as the mean real per capita income of a country. But, this measure is actually a little bit different from the more common concept of economic per capita income. Real per capita income refers to the level of all incomes in a nation; per capita income refers only to the incomes of individuals. Thus, real per capita income is basically the income of the population, which would include the total population as well as the median resident population. The concept of long term average income is also useful for measuring long term economic performance. But, in the United States, the long term average income level is considered to be about 5% above the median level of the total population.
Long term rates of economic growth are normally based on longer periods of time – decades in most cases. But, even shorter periods of time can be used if the desired result is to determine the approximate rate of inflation. With higher inflation rates, the cost of living will rise and make it easier for people to buy products at higher prices. For example, the price of crude oil will increase over time, as will the price of other goods.
One way of measuring the long-term economic growth rate is through the concept of the real effective interest rate. This is the annual inflation rate, which is derived by subtracting the annual cost of living from the annual gross domestic product (GDP). The result will be an estimate of the long term average interest rate. However, the effective interest rate may vary from one survey to another. Surveys that give estimates based on current long term economic indicators may understate the actual number.
Another measure of the long term growth rate is the real gross national product (NDP). This refers to the value of goods and services produced within a nation. The value of a nation's economy grows with the increase in its GDP. The gross domestic product, or G.P. is often used to aid in predicting short and long term interest rates and the strength of the U.S. dollar.
Many financial experts believe that the best way to predict the long-term economic growth rate is to use the Purchasing Managers Index (POM). This index is designed to measure the performance of specific industries. For instance, the stock market is often measured using the POM. The index . . . . . . is believed to better reflect the state of an industry's economy than a broader index would. In addition to gauging the performance of individual industries, the POM can also be used to gauge the health of the overall economy. While it can take several years for the index to become truly effective, it is important to keep an eye on the performance of important industry groups.
In recent years, there has been much debate about the efficiency of the U.S. economy. The topic is widely discussed in business circles, especially during the presidential election. While no one can accurately forecast the direction of the economy, it is possible to create a good gauge of the direction it may eventually head. By keeping tabs on various indicators of long term economic growth, businesses and consumers can make better-informed decisions that will, hopefully, lead to stronger economic growth in the future.