Economic Growth and Development

Question 1

What is economic growth?

Answer 1

Economic growth occurs when the monetary value of out of goods and services produced in an economy increases. It is measured by an increase in real GDP / per capita

Question 2

What is development?

Answer 2

Development is concerned with a permanent improvement in people’s well-being and quality of life.

Question 3

How is economic growth measured?

Answer 3

1. GDP is a measure of national income. It is the monetary value of output of goods and services in an economy over a year.

When comparing countries, some adjustments need to be made, such as:
2. Real GDP per capita which takes into account differences in the population.

Question 4

How is economic development measured?

Answer 4

The United Nations launched the Human Development Index (HDI) as a composite indicator of economic development, where development is defined as enlarging peoples choices.

Question 5

What are the three main aspects focused on in HDI and how are they individually measured?

Answer 5

1. Longevity - for people to live a long and healthy life. Measured by life expectancy at birth.
2. Knowledge - for people to acquire knowledge. Measured by the mean years of schooling for those aged 25.
3. Standard of living - for people to have access to resources needed for a decent standard of living. Measured by Gross National Product (GNP) per capita.

Question 6

How does economic growth lead to development?

Answer 6

1. Growth leads to an increase in average income (=increase in standard of living), resulting in a reduction of poverty, higher life expectancy and reduction of infant mortality as people can afford basic necessities
2. Growth leads to development of secondary and tertiary sectors = more jobs, improved lifestyle + move into higher value areas of production
3. Higher tax revenues can enable a government to improve health, education and transport infrastructure
4. A virtuous cycle of prosperity and growth develops (Harrod-Domar model) = higher domestic savings leading to higher investment meaning more growth.
5. Benefits of economic growth can lead to a ripple effect via multiplier and accelerator effects, as well as attracting FDI.

This enables a country to move through the stages of development.