Economic growth and development

Macroeconomic indicators calculated at the prices of the current year are called nominal values; because prices change from year to year, comparing different years uses the real value — the value at the prices of a chosen base year. The link is: real GDP = nominal GDP : I, where I is the price index (if prices rise 25%, I = 1.25). In a market economy activity changes like a wave: growth, peak, decline and the lowest point — one rise and fall is called an economic cycle; if real GDP falls for at least six months, it is a sign of recession. Economic growth is a steady rise in real GDP; it is sometimes also measured by real GDP per capita. Extensive growth comes from drawing more resources (land, workers, raw materials) into production, intensive growth from using existing resources more efficiently — through technology, knowledge and skills. Living standards depend not only on GDP per capita but also on literacy, health, life expectancy, housing and the state of the environment, so if GDP is high but much of it does not go to people’s needs, well-being may not rise.