Economic Growth And Economic Development

917 Words May 6th, 2016 4 Pages
Economic growth refers to an increase in the capacity for an economy to produce goods and services as compared from one period of time to another. It can be measured either in nominal terms which include inflation, or in real terms that are adjusted for inflation. It is mainly influenced by unemployment, inflation, technology levels, rate of investment, population growth rate, among other factors. These factors are used further to explain the differences in the varying level of output per capita between and among countries, and explain why some countries are economically growing faster than others. These factors are best represented in both the theoretical and empirical forms through the neoclassical endogenous growth models (Steil, 2013, n.p.).
Economic growth revolves around business cycle which include the following phases; depression, growth or expansion, boom and recession. During economic downfalls such as recession and depression phases, it is evident that aggregate demand for both goods and services might be insufficient thus leading to unnecessarily high unemployment rates, low investments and potential losses of economic output. At this phase the economy of a country goes down as some of the investments and savings are used to cater for other basic necessities. Inflation also pins down the growth further as the purchasing power of the current level of income is greatly reduced. As explained by the IS/LM model in the general theory by John Hicks, there are some…
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