Monday, May 23, 2011

What Is Economic Growth

A lot of people are wondering what is economic growth and how does it help. This situation can be explained as the expansion of the productive possibilities of the economy. With this kind of growth, this should help advance higher living standards as well as employment. There are many advantages here that everyone can benefit from. One benefit with this situation is higher living standards. This standard is measured by income per head of household. On an even better note, employment will be greatly effected. This kind of growth will certainly increase employment.

Other advantages here include the fiscal dividend and growth and business confidence. As far as the fiscal dividend is concerned, economic growth will have an excellent effect on the government's finances. With growth and business confidence, this is usually great news for the stock market as well as company profits. Just as they there are advantages with everything, there are also disadvantages. Although there are not too many disadvantages here, they still pose a risk or a threat. Even though it's good that the economy will be growing, there are two threats here that could cause serious problems. The threatening factors that come along with economic growth are inflation risk and environmental concerns.

When it comes to the inflation risk, this situation will occur when the economy is growing too fast. The danger comes when the demand rises significantly above the supply. If this situation comes to pass, producers will take advantage of this and will increase prices for consumers. On the other hand, there will also be environmental concerns. With the fast growth of consumption and production, it has the possibility to create negative factors.

With this situation, there is also a trend rate. To get a better understanding of these trend rates, people use speed limits to get a better understanding of what's going on. In this situation, there is above trend and below trend growth. The above trend is considered the positive gap and the below trend is considered the negative gap. With the positive gap, the economy will grow a lot faster than the set trend. This situation can also lead to positive inflation. On the downside of things, the negative gap happens when the economy goes through a "slow down" or recession. This issue becomes a factor when the growth rate is substantially below the trend rate.

The economy is very important for everyone's well-being. In recent times, the economy has suffered quite a bit and is recovering slowly but surely. There are a few things that we can do to keep the economy up to date and functioning properly. Keeping an entire economy functioning is not at all easy, but it can be done. The economy hits a few rough patches every now and then, but it always manages to get back to where it needs to be. With changes in our habits and resources, we can keep the economy flowing the way it should. If it happens to get out of balance, everything falls out of place and has to be fixed.

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