The relationship between inflation and economic growth has been one of the most important issue since the beginning. By inflation, we mean a gradual increase in the level of price of goods and services over a period of time. When inflation increases, purchasing power of money decreases, cost of living also the cost of borrowing increases. All these causes the economic growth to decrease. However, if cost of borrowing decreases, this means investors will take more loans which will lead to higher investment, which also means labors will have more wages, (higher disposable income) and this in turn will increase consumption hence GDP will increase which will lead to economic growth.
Though the phases don’t occur at regular intervals, they have some recognizable indicators. The business cycle The business cycle diagram. Interpretations of the cycle Expansion is between the trough and the peak. That 's when the economy is growing. Gross domestic product, which measures economic output, is increasing.
This theory was developed in late 1950’s and 1960’s of the twentieth century. This theory is based on the thought that the collection of capital and decision of savings related to it as an important determinant of economic growth. Additionally, the relationship between the capital and labor of an economy determines its output. Moreover, it added technology to the production function as an exogenously determined factor. 1.3.3 Modern Day or New Growth Theory: The new growth theory argues that “real GDP per person will continually increase because of people hunt of
In the year 1938 President Franklin Delano Roosevelt established the federal minimum wage of $0.25, an equivalent of $4.11 in modern dollar value. The general idea was an increase in wage would mean that employees started to earn a lot more money so much, that they were able to buy additional products and services. Business whose services and products are now being purchased earn money. These business now are able to hire more people, repeating the circle. Since 1983 congress has raised the minimum wage 22 more times to encourage economic growth.
Multiple studies have shown that there is a significant increase in economic inequality over the last 25 years in several regions in the world. Economic inequality is a measurement of the income distribution that puts emphasis on the gap between the incomes of a household or an individual in a certain country. The distribution of income and wealth has become increasingly unequal since 1970 (Morris and Western, 1999). Between 2003 and 2013, income inequality even grew in well developed countries such as Germany, Denmark and Sweden. The top ten percent of earners raced ahead, while the bottom ten percent fell further behind.
The economic prosperity is measured by indicators such as gross domestic product (GDP). GDP is the total all market value of goods and services produced in a particular country for a given year. The demand of air travel in general would follow the growth of GDP and the opposite is true when the economy enters recession. The correlation between the demand of air travel and the economic growth has been recognised for many years. An acceptable general rule of thumb is that for every 1 percent of economic growth there is increase of 2.5-3 percent increase of world air
The Velocity of money is a term to describe how fast money changes hands. Mathematically; the Velocity = the Nominal GDP divided by the total amount of money in circulation (V=Pq/M). It is an observation of how active & vibrant an economy is or how stagnant it is. When V is high, money is exchanging hands frequently. Often through the paying for labor and purchasing goods and services.
One of the assumptions of the Solow-Swan economic growth model is a steady growth in the per capita income of the country. The World Development Data Index (WDI) shows that most, if not all; the countries sampled had a steady, gradual and continuous growth of their per capita income. The same also applies to those countries such as Japan which recorded a decline in their per capita income. The gradual growth of per capita income is an indication of a gradual accumulation of capital. As the labor output and input in these countries increases, their income and savings increase too as the fraction of their income they save increases.
DISCUSSION GDP is usually used as a key parameter to account for a country’s economic growth. It is fundamentally the broadest quantitative measure of a country’s economic activity, it is the monetary value of all goods and services produced within a nation’s geographic borders over a specific period of time. GDP is a measure where a country stands economically with reference to other nations and its economic condition. Three approaches can be used to identify the GDP; • Income approach, • Expenditure approach and • Production approach These approaches help in understanding that how much the economy is growing or how rapidly it is deteriorating. The basic factors that affect the GDP are discussed as follows: PERSONAL CONSUMPTION Personal
1) High growth rates of GDP per capita in developed countries are due to an increase and, after that, stabilization of the population in these countries; 2) High growth rates of production’s factors, especially labor productivity; 3) High rates of transformation of the structure in the economy (technological progress law); 4) High rates of social and ideological transformation - urbanization and secularization; 5) The ability of developed countries to find new markets and sources of raw materials, creating a global unity based on civil and military technologies; 6) Restriction of spread (1/3 countries of the world 's population have not yet reached the minimum level of that modern level of technology). All these characteristics of modern economic growth are closely interrelated. Therefore, the high growth income per capita is a consequence of the rapid growth in labor productivity. High incomes, in turn, lead to structural changes in demand, and consequently, to structural reorganization of the economy (as the demand for goods and services is increasing faster than the demand for food). Structural adjustment requires new technologies, which change the nature of the productive forces, its location and influence on the average-sized enterprises.