Economic Growth Essay

712 Words3 Pages
Economic Growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Economic growth can be measured in nominal terms, which include inflation, or in real terms, which are adjusted for inflation. For comparing one country's economic growth to another, GDP or GNP per capita should be used as these take into account population differences between countries. Change in Economic Growth can be influenced by Fiscal Policy, Monetary Policy or Supply Side Polocies. As we can see at the diagram below, nowadays economy has movements away from the Production Possibilities Curve because there are resources, which are left unused or when they are not used efficiently. In this latter case, the point inside the PPC would simply illustrate production, i.e. society would be moving away from the PPC to an interior point. For example, an increase in the unemployment rate would move a productive efficiency point away from the PPC. So, let’s look at the demand-side policies. The first one is Fiscal Policy. Fiscal Policy is government spending policies that influence macroeconomic conditions. Through fiscal policy, regulators attempt to improve unemployment rates, control inflation, stabilize business cycles and influence interest rates in an effort to control the economy. If the country is going through a depression , or is under the economic crisis , the state may decide to hold a stimulative fiscal policy. In this case, the government needs to stimulate aggregate demand or supply, or both at once. To do this , if all other conditions are equal, the government increases the size of its purchases of goods and services, reduce taxes and increase transfers , if it is possible. Any of these changes will lead to an increase in aggregate output , which automatically increases aggregate demand and the parameters of the
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