Economic Growth: Notes on Economic Growth of a Country!

(a) Meaning of Economic Growth:

Every country in the modern world is aiming at its rapid economic growth. But what do we understand by economic growth?

“Economic growth is a process of sustained increase in country’s real income over a long period of time.”

Here, two points need special emphasis:

(i) Increase in country’s real income:


Refers to increase in national income in terms of goods and services and not in money terms National income in money terms may increase merely due to rise in prices although output of goods and services produced during the year may remain constant or even fall.

Therefore, there should be an Increase in country’s real income (in terms of goods and services) so that per capita availability of goods and services goes up leading to a rise in the standard of living of the people. National income is measured at current prices and at constant prices.

Between the two, national income at constant prices is called real income. Therefore, to know the increase in real income, national income at constant prices should be taken because this eliminates the effect of change in prices on national income.

(ii) Sustained increase over a long period of time:


Refers to continuous increase in real income for many years without break .An increase in real Income for a year or two does not indicate economic growth. Increase should be continuous for a number of years. Thus, time unit to measure economic growth should not be in terms of years but in decades so as to eliminate cyclical changes in national output.

(b) Indicators of Economic Growth:

The important measures or indicators of economic growth are:

(i) National income (ii) Per capita income and (iii) Per capita gross domestic product.