Economic Growth and Development

Economic Growth and Development

Question 1(b):

Economic growth is an increase in the amount of goods and services a country can produce over a certain period. Economic growth can be measured either in nominal or real terms. Growth measured in nominal terms is not adjusted for inflation, whereas the growth measured in real terms is. Hence to see whether the standard of living has improved for a country, real GDP per capita is used, which states the amount of goods and services produced by a person, on average, in a country.

Economic growth takes on different patterns based on the changes in the level of real GDP. The line graph of Real GDP shows the trend of real GDP for United Kingdom (UK) from 1970 to 2009. In the period under review, the country witnessed four periods of declining GDP that is negative economic growth cycles. The period of negative growth is known as recession. During this period, the real GDP declines. Usually two consecutive quarters of negative economic growth are known as a recession. These recessionary periods are highlighted in the graph. UK witnessed negative economic growth in 1974-1975 period followed by another recession in 1980-1981. The 1974-1975 recessions was followed after the World War II economic boom. Recession in the United Kingdom during this period was due to the oil crisis. Another recession hit the globe in 1980 which also affected UK. A decade of stable economic growth was witnessed after that when another recession struck UK in 1991. The 1991 recession came after a period of high economic growth. It was mainly caused by falling house prices, high interest rate and overvalued exchange rate. The next recessionary period was seen eighteen years after that in 2008 which is the crisis that we are currently facing. Low interest rate was largely to blame for this recessionary period.

Thus, growth rates for a country may vary overtime. Shifts in the growth rates lead to distinct patterns. Some countries observe steady growth, which depicts patterns of hills and steep hills; whereas others witness high growth, which is followed by stagnation also known as plateaus. Some also observe rapid growth followed by a decline known as mountains or even cataclysmic falls known as cliffs, continuous stagnation known as plains and steady decline known as valleys. In the first three recessions, a valley can be seen whereas the most recent recession is more of a mountain. Furthermore, the growth periods in between has shown a steady increase which depicts a pattern of a hill. GDP per capita rose in the periods where economic growth was observed as can be seen in the two graphs at the end. This shows that positive economic growth had an affirmative impact on the standard of living of the country as economic growth was well above the population growth rates.

Question 2:

Economic growth is used to measure an area, or a country's investments potential, its standard of living or to projects is monetary growth. There are several ways to measure ...