What is economic growth? How does it affect a nation's economy? Where did the concept of economic growth come from? Why is it important to analyze national economic performance? These and many more questions should be at the back of your mind while you are reading this article. Let us find out.
One way of measuring economic growth is to calculate the Gross Domestic Product (GDP). This measure is not without flaws. First, it only gives a representation of economic activity. While economic growth is a result of all economic activities, the output of each is different. So how do you compare the performances of nations?
The gross domestic product is a useful tool when gauging economic performance. But it is just one of the ways of gauging it. There are some others that are a lot more reliable than the simple number. For example, per capita income is a good proxy for economic health. It tells you what kind of standard of living of an individual enjoys. It also tells you about the size of the population, as well as the economic condition of that country.
Another measure of economic growth is the gross national debt. It is calculated as the total amount of all financial debts owed by a country to another. This is often used as a gauge of the national capacity to handle debt. Growth in the level of debt can be a very positive sign. However, it can also mean that national economic performance is going on the upswing, and may even be on the increase.
If you want to monitor changes in economic growth, try looking at the stock market. The Dow is a very reliable gauge of economic growth. It rises and falls according to the health of the economy. However, the market is quite unpredictable, so you have to keep a hawk eye and be prepared to change your views from time to time. There are times when things are going well, and there are times when things are not going so well.
One other economic growth indicator is the annual inflation rate. This index looks at how much the price of basic goods has risen over a certain period of time. In fact, it can be a better gauge of how much the prices of things have risen over the last few years than the annual gross domestic product (GDP) index, as it takes into account how much of the economy is actually measured in terms of goods and services per capita.
The other thing you can do is to look at world events and how they may affect the economy. For instance, a new war or . . . . . . conflict could cause a negative effect on the economy over a short period of time. This is known as a short-term economic impact. On the other hand, a longer term impact is measured through inflation. With inflation, you can calculate how much the price of commodities like oil, gold and other ores and metals would rise over time.
There are many economic indicators that you can use to determine the general state of the economy. However, these are not very reliable since the actual changes may not be felt for up to five years. It is, thus, more practical to look at various economic growth indicators available to you in order to get a better picture of the state of the economy. These will help you decide whether the economic growth is on track and whether there are some areas that need improvement. It will also allow you to make necessary adjustments before it is too late.