Mark Cuthbertson, economic growth

 

We hear a lot about economic fluctuation–and the overall state of our country’s economic health–in the news lately, but what exactly is economic growth? How is it measured, and what do those measurements ultimately reflect in terms of the United States’ economic identity?

Here is a quick guide to understanding the measurement of economic growth.

 

Overview

“Economic growth,” in short, refers to an increase in the inflation-adjusted market value of goods or services produced over time within an economy. Investopedia further simplifies economic growth as “aggregate productivity.”  

Subsequently, an economy’s overall “rate of economic growth” is determined by tracking the geometric annual rate of growth in Gross Domestic Policy (GDP), or a measurement of a country’s entire economic output for the past year, according to The Balance.  This rate is acknowledged between the first and the last year of a set period of time, and it refers to the average level of GDP over this period. As a result, countries are able to gain a sense of their growth,  the impact of economic changes they have experienced, and the overall economic direction that they are headed.

Identifying an economy’s “business cycle”

As touched on in the previous section, economic growth is mainly measured in changes to GDP, a process that boils down to a series of phases used to determine the overall “business cycle” of an economy, or a “short run variation in economic growth” referring to periodic ups and downs associated with a country’s current economic standing. These phases are not typically indicative of of predicted growth or sudden change. Rather, they usually refer to sporadic booms or expansions an economy experiences around a long-term growth trend.

These phases primarily include expansion, inflation, and recession, with expansion being the best possible scenario and recession being the worst. If a recession lasts for more than a decade, it becomes known as an economic depression.

Knowing the influencing factors of growth

In the United States, economic growth is driven by the country’s “abundance of natural resources,” as well as its temperate climate and large, diverse population. As a result of these characteristics, the US economy poses an advantage in consumer production, which allows it to enjoy personal consumption of nearly 70 percent of the products it produces.

Another influencing factor to growth is government stimulation techniques. The government attempts to manage the economy by means of fiscal policies in which it either cuts taxes, increases spending, or imposes some combination of the two. These tactics can potentially lead to debt accrual if not handled properly, so governments must be careful and exercise foresight as they form these fiscal policies.