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Meaning of Economic Growth (Short Definition):

Economic
growth refers to the increase in the production of goods and services in an
economy over a specific period
, typically measured by the rise in a
country’s Gross Domestic Product (GDP) or 
Gross National Product
(GNP)
. It indicates the expansion of an economy’s capacity to produce and
consume.


Measurement of Economic Growth (Detailed
Explanation): 

Economic
growth is measured using various indicators and methods. The most commonly used
metrics are:

1. Gross Domestic Product (GDP):

  • Definition: GDP is the total monetary
    value of all finished goods and services produced within a country’s
    borders during a specific period (usually quarterly or annually).
  • Types of GDP Measurements:
    • Nominal GDP: Measures GDP at current
      market prices without adjusting for inflation.
    • Real GDP: Adjusts nominal GDP for
      inflation to reflect the true growth in output.
    • Per Capita GDP: Divides GDP by the
      population to measure the average income per person, indicating living
      standards.

2. Gross National Product (GNP):

  • Definition: GNP includes the value of
    goods and services produced by a country’s residents, regardless of
    whether the production takes place within or outside the country’s
    borders.
  • Formula:
    GNP=GDP +Net income from abroad\text{GNP} = \text{GDP} +
    \text{Net income from abroad}GNP=GDP +Net income from abroad.

3. Growth Rate of GDP:

  • Definition: The annual percentage
    change in GDP over time, which shows the rate at which the economy is
    growing.
  • Formula:
    GDP Growth Rate=(GDP in Current Period−GDP in Previous Period GDP in Previous Period)×100\text{GDP
    Growth Rate} = \left(\frac{\text{GDP in Current Period} – \text{GDP in
    Previous Period}}{\text{GDP in Previous Period}}\right) \times
    100GDP Growth Rate=(GDP in Previous Period GDP in Current Period−GDP in Previous Period)×100.

4. Productivity Measures:

  • Definition: Measures growth in output
    per unit of labor or capital, indicating how efficiently resources are
    being utilized.
  • Example: Labor
    Productivity
    = Output / Hours Worked.

5. Other Indicators:

  • Industrial Production Index
    (IPI)
    :
    Measures output in industrial sectors.
  • Employment Rates: Indicates economic
    expansion if job creation aligns with growth.
  • Consumption and Investment
    Trends
    :
    Higher consumer spending and investment reflect economic growth.


Why GDP is the Most Common Measure:

  1. Comprehensive: Captures all goods and
    services within an economy.
  2. Comparable: Allows for easy comparison
    across countries and time periods.
  3. Widely Accepted: Used by governments, international
    organizations, and researchers.


Limitations of GDP as a Measure of Growth:

  1. Ignores Distribution: GDP does not reflect
    income inequality.
  2. Non-Market Activities: Excludes unpaid labor and
    informal economy activities.
  3. Environmental Costs: Fails to account for
    resource depletion and pollution.
  4. Quality of Life: GDP growth doesn’t
    necessarily indicate improved well-being or happiness.

For a
holistic understanding, other metrics like the Human Development Index (HDI)
or Green GDP are often used alongside GDP to measure economic progress.