World Economic Growth

2010-01-31T19:48:00.002+08:00

Growth is a measure of the welfare of the population of a country or region's economy and the success of economic policies. Implicitly, we assume that high economic growth is beneficial for the welfare of the population, meaning that high economic growth would be an outcome sought by the political authorities and the population of a country. Although one of the most used measures, has drawbacks that must be taken into account, for example GDP takes no externalities, if GDP growth comes from genuinely productive activities or consumption of natural resources, and there are activities that increase and diminish the welfare or production and are not included in the calculation of GDP, as the informal economy or activities outside of the market, as some cooperative exchanges or production for own consumption. Additionally it may be that economic policies are evaluated using the economic growth in periods of time without regard to intergenerational transfers of resources such as debt or consumption of nonrenewable resources. Economic growth does not take into account what happens to income distribution. This is usually considered a more progressive distribution of income implies a higher welfare. Despite all this, the measure of economic growth is very useful to analyze many aspects of the economy and economic policy.

Gross Domestic Product vs Real Nominal

2010-01-30T22:36:00.001+08:00

What happens to the gross domestic product if the price of bread rises from $ 10 to $ 12? Suppose that the amount produced was constant, and that bread is the only product of the economy. The product uses nominal prices of each year, then reflect an increase in gross domestic product of 20%. But the amount of bread is the same! To solve this problem using the real gross domestic product. The real gross domestic product uses the base year prices, for example, the first year. Then, in this case, the real gross domestic product was not affected. Or real gross domestic product is calculated by deflating nominal gross domestic product for inflation. In our case, the inflation rate is 20%, as real gross domestic product, calculated by the latter method is also kept constant. It goes without saying that these two methods yield the same results.

Economists generally use real gross domestic product, or an index of it, given that changes in gross domestic product due to changes in prices are not a reflection of changes in welfare of the population or the size of the economy .

PN = PI + national factor income made abroad - foreign factor income made locally.