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What is the impact in the economy if gross domestic product grows?

Question:

What is the impact in the economy if gross domestic product grows?

Growth of Gross Domestic Product:

The gross domestic product is an economic indicator. Basically, it shows the direction of economic performance. There exists a direct relationship between GDP and growth of the economy.

Answer and Explanation:

The economy expands if the Gross Domestic Product (GDP) grows. Subsequently, the growth accrues numerous benefits, which include:

  • Low levels of unemployment. A growing GDP signifies a robust production sector. Increased economic output requires labor input to facilitate the production process hence creating employment opportunities.
  • High standards of living. Increased GDP shows that firms improve their profitability due to heightened productivity, further enabling them to pay high wages to the employees. The high remunerations enable workers to afford high living standards, such as quality housing and material comfort.
  • Reduced borrowings by the government. Growth in GDP shows that the production sector is performing well hence enabling the government to collect enough taxes to finance its programs. Therefore, the government is not prompted to borrow from external sources because of the high tax revenue collected.
  • Trade surplus. A growing GDP enables a country to augment its exports, which contributes to high volume and value of exports hence achieving a positive trade balance when exports exceed imports.

Learn more about this topic:

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Overview of the Gross Domestic Product

from CLEP Social Sciences and History: Study Guide & Test Prep

Chapter 59 / Lesson 2
2.6K

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