Economic+Growth

Economic Growth


 * Definition:**
 * Economic growth** occurs when there is a sustained increase in a country’s productive capacity over time. This is commonly measured by the percentage increase in real GDP.

Economic growth is measured by the annual rate of change in real Gross Domestic Product (GDP).


 * Economic Growth (%) = [ **** real GDP (current year) – real GDP (previous year) / real GDP (previous year)] x 100/1 **


 * Multipler:**

Multiplier is the greater than proportional increase in national income resulting from an increase in aggregate demand. The multiplier shows that if equilibrium in the circular flow is disrupted by an injection or leakage, it will have a more than proportional impact on national income. An injection of export revenue to businesses, for example, initially results in a proportional increase in income on consumption, it further boosts firm revenue and individual income - multiplying the effect of the export injection.

k = 1/MPS

or

k = 1/1-MPC

as MPC + MPS = 1

The size of the multiplier is an indication of how much economic activity will fluctuate in the event of an economic shock. A lower MPS increases the multiplier and makes economic fluctuations larger. Conversely, a higher marginal propensity to save decreases the multiplier and reduces economic fluctuations.