Basic Concepts of Economic Growth

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We often come across the terms like developed, developing and underdeveloped countries, what should we perceive from them? Which factors give these tags to the countries? It can be explained by the economic growth of the States.


The term economic growth means the increase in the overall productivity that is measured by the gross domestic product (GDP). Productivity means the tendency of a state to produce goods and services from its own resources. Any rise in the productivity marks the increase in the economic growth.

Types of economic growth

Economic growth is measured in two ways: 

  • Real economic growth
  • Nominal economic growth 

Real Economic Growth:

Real economicgrowth is when the rate of change of overall productivity is rising. For example, if a State isbecoming more capable of producing goods and services with each passing year because of an increase in natural and human resources or any other factors then it’s said to have risen in its real economic growth.

Nominal Economic Growth:

Contrary to the real economic growth, the nominal economic growth is when the GDP of a State is rising merely because there’s an increase in the prices of commodities or if the pay rates are rising. This is just the growth in numbers where there’s no growth in real sense because the State is not showing any extraordinary progress in real sense.  So this kind of economic growth is determined by the rate of inflation which is exactly not what a State should aim for.

Measurement of Economic Growth

Economic growth is not exactly measured in terms of increased production of goods and services. Yes that’s what the productivity is but some goods and services are more valuable than the rest. It means that the quantity doesn’t matter, what matters is the quality and the value of the goods and services. That’s what is meant by the real productivity. Hence, economic growth is measured in U.S. dollars.

Factors affecting economic growth 

The factors that impair the economic growth are unemployment, inflation, brain drain, poverty, lack of natural resources, lack of human resources, dearth of foreign investments, education setbacks, social evils, terrorism, disturbed law and order situation, poor healthcare facilities,  bad living standard etc. 

How to strengthen economic growth 

In order to generate economic growth, the best way is to aim at strengthening power resources. For example, in a country which is not land-locked, and has natural resources in abundance, its strategic importance is the biggest strength for it on the global map. But, when these resources are not fully exploited or utilized then the state is said to have deprived itself of making the most of its resources. There can be a possibility that the Country is not rich enough to invest in those resources but it can invite foreign investments in that case. Secondly, manpower and human resource is the biggest indicator of the economic growth. Then comes, the technological advancement without which no economy can grow in this age of drastic development. All these factors in turn solve the problems of poverty and poor living standard. Also there won’t be any brain drain. Brain drain is a situation when the human resource of a state keeps draining to other countries because they have better opportunities offered by the latter.  This is the worst misfortune for any state to face and the biggest impediment to economic growth.

Key Facts and Statistics

  • The annualized rate of US Gross Domestic Product (GDP) is $20.412 trillion (April-June 2018)
  • The annualized rate of US GDP Growth Rate is 4.2% (April-June 2018)
  • US GDP per Capita is $56,455 (2018)
  • As per World Bank, US Gross National Income (GNP) is $18.138 trillion PPP dollars (2015)
  • US Unemployment Rate is 3.9% (August 2018)
  • Annualized core inflation rate is 2.2% (May 2018)
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