Did you know that the gross domestic product (GDP) of the U.S. economy has grown by more than three percent each year since 1947? While GDP is an effective method to determine the expansion of the economy, it is not the only way to define economic growth.
Read on to learn more about the GDP and other ways of defining economic growth.
1. GDP
The GDP is perhaps the most common method used to define economic growth. It is considered effective because it takes a comprehensive measurement of the economy. This includes the values of goods and services that a country directly produces.
While the GDP is a dollar amount, it is often referred to as a percentage. This percent value is used to compare previous periods to determine which way the economy is heading. Three common rates for measuring the GDP include:
- Quarterly growth rate
- Four-quarter or yearly growth rate
- Annual average growth rate
These numbers are adjusted for inflation and seasonal changes, such as winter weather, to provide an accurate measurement of GDP growth.
2. Jobs Created
While not as conclusive as the GDP numbers, measuring the jobs created is another method used for an economic growth definition. The jobs report is used by the government every month. Jobs are almost always added but the indicator is whether or not the total number of jobs is at or below the predictions.
The drawback to using this figure as a way to define economic growth is that not all jobs are the same. Lower paying jobs can be easier to create but aren’t able to provide sufficient means for living. The monthly jobs report does categorize jobs by sector, which helps with determining if the jobs are well-paying and permanent.
3. Inflation Rate
The inflation rate is how present-day currency compares to its past values. Typically, most currencies lose value over time and this directly relates to rising costs of goods and services. If a currency has something of value backing it up, such as a precious metal, its inflation won’t be as steep.
Multiple situations lead to inflation. One situation is when demand supersedes supply, causing the costs to rise. Inflation also results when more currency is produced, such as printing money or supplying more credit.
Importance Of Economic Growth
While there are multiple ways to define economic growth, evidence is beginning to emerge on the type of societies that better foster it. James Robinson and other economists believe that inclusive societies lead to better economic growth. They also argue that the opposite is true, that autocratic regimes have stagnant or slower development.
How To Define Economic Growth
Now that you know there are multiple ways to define economic growth, do you understand that it’s a complex topic? The GDP may be the most inclusive but other definitions like job growth and inflation are effective. Regardless of how you define it, economic growth is essential.
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