Economic Growth
Economic growth refers to the rate of increase
in the total production of goods
and services within an economy. Economic
growth increases the productivity
capacity of an economy, thereby allowing
more wants to be satisfied. A growing
economy increases employment
opportunities, stimulates business enterprise and
innovation. A sustained
economic growth is fundamental to any nation wishing to
raise its standard of
living and provide a greater well being for all. Gross
domestic product (GDP)
is the monetary value of all final goods and services
produced in Australia
over a specific period of time, usually a year. It is the
total value of
production within the economy. The total value of production is
the total
value of the final goods or services less the cost of intermediate
goods
purchased. GDP at market prices (nominal GDP) measures the value of
total
production at the present price level. That is, GDP at market prices
measures
both the total physical volume of goods and services produced and
the prices at
which these goods and services are sold. GDP at market prices
has considerable
usefulness when measuring the growth rates and relative
importance of different
industries or sectors within the economy. The method
for measuring GDP at market
prices is implied by the following formula;
[(current year quantity) x (Current
year price)]. However GDP at constant
prices is the most common method of
measuring economic growth. GDP at
constant prices excludes the effect of price
variations and allows for the
measurement or comparison of real or actual
production levels. Because of
this, GDP at constant prices is usually referred
to as real GDP. Real GDP is
measured by the following formula; [(current year
quantity) x (based year
price)]. A more reliable measure of economic growth is
real GDP per capita;
this measurement takes into account both the total
production of the nation
and the total population. Real GDP per capita measures
the real income per
head of the population. This can be measured by the
following formula; Per
capita nominal GDP = Nominal GDP / Population, Per capita
real GDP = Real GDP
/ Population. Seven factors determine economic growth.
Natural resources
such as land, mineral deposits, waterways; climatic conditions
provide an
essential foundation to economic growth. Combined with the other
resources of
capital, labour and enterprises, natural resources can be developed
and
organised to increase the productive capacity if the nation. Consequently
the
quality and size of the labour force is a major determinant of
economic
growth. Education and vocational training are essential the growth
potential of
Australia. The promotion of education and job training
schemes increase the
knowledge, skills and flexibility of the workforce that
contributes to
potentially higher levels of productivity and efficiency.
Wether from natural
increase or immigration population growth can cause a
higher level of economic
growth. An increasing population requires increased
public spending on housing,
education and other social needs while businesses
expectations of increased
demand induces higher levels of private
investments. Research, innovation and
technological developements are
essential to any economy wishing to increase
their long-term productive
capacity. Improved technology lifts overall
efficiency and raises the
productive base to the economy. An important
prerequisite for economic growth
is capital accumulation. Private investment
spending on plant, machinery and
equipment ensures the future production of
goods and services. The greater
the degree of capital accumulation the greater
the potential for increased
production. High levels of inflation cause market
interest rates to rise and
this upward movement ca aversively affect business
confidence and levels of
investment. Periods of inflation generally disadvantage
companies by
increasing costs and squeezing business profits. The political
stability of
the nation is a vital factor in determining economic growth and the
standard
of living. Countries experiencing civil disturbance and political
instability
are unable to effectively sustain efficient production. As a result
these
countries are disadvantaged through their inability ti attract
foreign
investment and export markets. Subsequently the overseas sector is a
key factor
in determining economic growth within Australia. Exports sales
form a
substantial part of Australia’s GDP and foreign capital inflow
continues to be
essential to Australia’s total investment and the financing
of imports. The
inflow of funds to promote production is not the only
stimulus to growth in
Australia. Merchandise trade provides a greater
variety and volume of goods and
services, allowing Australia to benefit in
terms of improved living standards.
Trade also enables domestic industry
to specialise and raise production through
economies of scales. The overseas
sector also provides up to date foreign
technology and enterprises to
Australia through direct foreign investment. The
importance of a higher
economic growth rate is essential to improve the basic
living of the
population and provide a greater variety of choices. Basic
benefits of a
higher economic growth rate may include better health care and a
better
infrastructure.
Bibliography
Dornbush R, and Fisher S,
1994,Macroeconomics, 6th eddition, Mcgrew-Hill Inc,
New York Mankiw N Get
al, 1998, Principals of Economics, the Dryden Press Mc
Targgart D, Finley
C and Parkin M,1993, Macroeconomics, Edition Wesley Publisher
Ltd Mc
Targgart D, Finley C and Parkin M, 1996, Macroeconomics, Edition
Wesley
Publisher Ltd Miller R L,1998, Ecnomics today, 6th edition, Harper
& Row
Publishers, New York Howlett M, 1994, Economics, Bernard
Publishers, South
Australia BIBLIOGRAPHY Dornbush R, and Fisher S,
1994,Macroeconomics, 6th
eddition, Mcgrew-Hill Inc, New York Mankiw N Get al,
1998, Principals of
Economics, the Dryden Press Mc Targgart D, Finley C
and Parkin M,1993,
Macroeconomics, Edition Wesley Publisher Ltd Mc
Targgart D, Finley C and Parkin
M, 1996, Macroeconomics, Edition Wesley
Publisher Ltd Miller R L,1998, Ecnomics
today, 6th edition, Harper & Row
Publishers, New York Howlett M, 1994,
Economics, Bernard Publishers,
South Australia
Bibliography
Dornbush R, and Fisher S,
1994,Macroeconomics, 6th eddition, Mcgrew-Hill Inc,
New York Mankiw N Get
al, 1998, Principals of Economics, the Dryden Press Mc
Targgart D, Finley
C and Parkin M,1993, Macroeconomics, Edition Wesley Publisher
Ltd Mc
Targgart D, Finley C and Parkin M, 1996, Macroeconomics, Edition
Wesley
Publisher Ltd Miller R L,1998, Ecnomics today, 6th edition, Harper
& Row
Publishers, New York Howlett M, 1994, Economics, Bernard
Publishers, South
Australia BIBLIOGRAPHY Dornbush R, and Fisher S,
1994,Macroeconomics, 6th
eddition, Mcgrew-Hill Inc, New York Mankiw N Get al,
1998, Principals of
Economics, the Dryden Press Mc Targgart D, Finley C
and Parkin M,1993,
Macroeconomics, Edition Wesley Publisher Ltd Mc
Targgart D, Finley C and Parkin
M, 1996, Macroeconomics, Edition Wesley
Publisher Ltd Miller R L,1998, Ecnomics
today, 6th edition, Harper & Row
Publishers, New York Howlett M, 1994,
Economics, Bernard Publishers,
South Australia BIBLIOGRAPHY Dornbush R, and
Fisher S,
1994,Macroeconomics, 6th eddition, Mcgrew-Hill Inc, New York Mankiw N
Get
al, 1998, Principals of Economics, the Dryden Press Mc Targgart D, Finley
C
and Parkin M,1993, Macroeconomics, Edition Wesley Publisher Ltd Mc Targgart
D,
Finley C and Parkin M, 1996, Macroeconomics, Edition Wesley Publisher
Ltd Miller
R L,1998, Ecnomics today, 6th edition, Harper & Row
Publishers, New York
Howlett M, 1994, Economics, Bernard Publishers,
South Australia