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What Factors Affect GDP Growth?

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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 16 November 2016
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A nation’s growth domestic product (GDP) represents the economic market values for the goods and services that businesses produce. GDP growth occurs when a country allows its private sector to operate in a mostly unregulated manner. Specific factors that affect GDP growth include widely available economic resources at cheap prices, high labor and wage output, and strong consumer and business confidence. In many cases, these factors all occur differently in each nation; other times, different factors can play a role. Therefore, growth is not something every nation experiences at the same time or through the same factors.

Freedom and the ability to collect and protect private property are among the most important underpinnings of a nation’s economy. These two factors must be present as they encourage individual citizens to reach for the sky and make every attempt to increase their own personal livelihoods. Through these two factors, a company naturally experiences GDP growth as the self-interest of each individual takes over. It is up to a country’s government to ensure available resources and the protection of private property. Without ample protections, a country cannot guarantee the economic success of its population.

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Economic resources are the physical items individuals and businesses need in order to produce goods and services. These items must be readily available within the country or through trade. A price point that is inexpensive and allows for the maximization of the resources is often necessary to experience solid GDP growth. Competition to obtain these resources can also help ensure GDP growth. As companies seek to obtain more resources than others, growth occurs due to higher supply in the market.

High wages and productivity output are also necessary for a nation to experience GDP growth. High wages indicate a company is able to secure enough profits in order to pay employees well for their labor. These wages then enter the market as individuals purchase more goods, driving up demand and increasing supply. The wages affect productivity as companies seek methods that allow for inexpensive production to increase supply output. The result is inexpensive goods that employees can help produce in large quantities.

Consumer and business confidence represent the belief these parties have in the current economy. In most free-market economies, consumers can make up a large portion of the GDP growth. High consumer confidence indicates buyers who are willing to spend money on various economic goods. The same goes for business confidence. Confident businesses look to increase output and meet potentially higher consumer demand for goods and services.

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lluviaporos
Post 2

@Fa5t3r - Well, see I don't think most economists would disagree that unrestricted growth is a bad thing in the long run. But regulating the economic sector doesn't lead to growth, it's as simple as that.

It might be needed, yes, and it might be good for the economic health of the country in the long run. But that's because the health of the economy doesn't always rest on the growth of the GDP.

There are a lot of different factors that can tie into the health of an economy and its resilience.

Fa5t3r
Post 1

I know it's a common theory in economics that GDP growth is based entirely on an unregulated economic sector, but I don't think it's entirely true. I mean, when you look at what has happened when unregulated companies take advantage of the situation and go too far, it's not always GDP growth that results.

In fact sometimes they can cause the country's economy to completely crash. I just don't think economists like to take that kind of result into account because it messes up their averages.

In the real world, unrestricted growth just isn't sustainable and a GDP has to take that into account.

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