• Economic growth is measured by changes in the real output of goods and services produced by an economy over a period of time, usually measured by the change in the Gross Domestic Product (GDP) or Gross National Product (GNP).
• These measures take into account the value of all final goods and services produced within a country's borders in a given period, adjusted for inflation to reflect changes in purchasing power.

• Nominal GDP measures the total value of goods and services produced in an economy in current prices.
  • It does not take into account changes in the prices of goods and services over time, so it may overestimate the true level of economic growth if prices are increasing.
• Real GDP adjusts for changes in the prices of goods and services over time by using a base year's prices.
  • It provides a measure of the volume of goods and services produced, which is a better indicator of the underlying economic growth.

• • The base year is a reference year used as a benchmark for comparison of economic data over time.
    • It is the year against which other years are compared to measure changes in real terms.
  • Constant prices refer to the prices of goods and services in the base year, which are used to value economic output in order to eliminate the effect of inflation.
  • A price index is a way of comparing changes in the price level over time.
    • The value of the first year in the index (base year) is set at 100 and the value of each following year is a percentage of it.
  • The GDP deflator is a measure of the average level of prices of all goods and services produced in an economy.
    • It is calculated by dividing nominal GDP by real GDP and then multiplying by 100.
    • The GDP deflator reflects the overall level of inflation in the economy and can be used to convert nominal GDP into real GDP.
• For example, consider an economy that produces 100 units of goods and services in a given year, with a total value of $100.
  • The next year, the economy produces 105 units of goods and services, with a total value of $110.
  • If the nominal GDP has increased by 10%, it would appear that the economy has grown, but it could just be the result of rising prices.
  • If the real GDP is calculated using base year prices, it would reveal the true level of economic growth, which in this case would be 5%.

$110 × 100/105 = $105

• Capital formation: The accumulation of capital in the form of machinery, technology, infrastructure, and human capital can increase the productive capacity of an economy and lead to economic growth.
• Labor force growth: An increase in the size of the labor force, through population growth or an increase in labor force participation, can also contribute to economic growth.
• Technological progress: The development of new technologies, processes, and products can increase the efficiency of production and lead to economic growth.
• Education and human capital development: An increase in the level of education and training of the labor force can increase the productivity of workers and lead to economic growth.
• Natural resources: Abundant natural resources, such as land, minerals, and energy, can provide the raw materials for production and contribute to economic growth.
• Political stability and good governance: A stable political environment and good governance can attract investment and promote economic growth by creating a favorable business climate.
• Trade and globalization: Openness to trade and integration into the global economy can increase the availability of goods, services, and investment and lead to economic growth.

• Increased income and standard of living: Economic growth can lead to an increase in the overall level of income and a rise in the standard of living for individuals and households.

   

• Job creation: Economic growth can result in the creation of new jobs, particularly in growing industries, which can reduce unemployment and increase the level of labor force participation.

   

• Improved public finances: As the economy grows, tax revenues tend to increase, which can provide governments with additional resources for public spending on infrastructure, education, health care, and other public goods and services.

   

• Enhanced competitiveness: Economic growth can increase the competitiveness of an economy, making it more attractive to foreign investment and improving its position in international markets.

   

• Environmental degradation: Economic growth can also lead to environmental degradation, as increased production and consumption can lead to higher levels of pollution and the depletion of natural resources.

   

• Income inequality: Economic growth can also contribute to income inequality, as some individuals and households may benefit more from the increased income and job opportunities than others.

   

• Cultural and social changes: Economic growth can lead to cultural and social changes, as people become more affluent and consumer-oriented, and traditional values and practices may be lost.