Economic Growth, Sustainability, and Business Cycles

Economic Growth, Development, and Sustainability

Measurement and Consideration

Economic growth is usually measured as a percentage of real GDP growth (excluding the effect of inflation). Economic growth is historically considered desirable because it bears a certain relation to the amount of material goods available and, hence, some improvement in the living standards of people. However, some are beginning to think that economic growth is a dangerous double-edged sword. Because it measures the increase in an economy producing goods, it is also related to what is consumed or, in other words, spending.

Growth in the Short and Long Term

Short-Term Variation in Economic Growth

This variation is known as the business cycle, and almost all economies regularly experience stages of recession. The cycle may be confusing because fluctuations are not always regular. The explanation of these fluctuations is one of the main tasks of macroeconomics. There are different schools of thought that address the causes of recessions, but some consensus has been reached. Increases in oil prices, war, and crop failures are obvious causes of a recession. Short-term variation in economic growth has been minimized in high-income countries since the early 1990s, which is partly attributed to improved macroeconomic management.

The Long-Term Path to Economic Growth

The long-term path is a fundamental issue in studying the economy; an increase in a country's GDP is often seen as an increased standard of living for its inhabitants. Over long periods, even small annual growth rates can have a significant effect due to their combination with other factors.

Economic Cycles and Their Phases

Definition and Duration

Cycles are defined as the oscillations from expansion to contraction of the economy, which occur between successive crises. Since the nineteenth century, business scholars have been impressed by the dramatic falls in economic activity that occur every 7 to 10 years.

Phases of the Business Cycle

• Peak: All economic activity is at a peak period of prosperity.
• Recession: Macroeconomics considers this a period of decline in the GDP of an economy that lasts no more than one year.
• Depression: All economic activity is in a period of decline.
• Recovery: This phase revives economic activities, increasing employment, production, investment, and sales.