Question

Question 1. (6 marks) Discuss how economists compare nominal income of a country in a particular year to the previous year to examine economic growth.

Answer 1

Economic growth is termed as the increase in the market value of the goods and services produced by an economy over time. It is measured as the percentage rate of increase in the real gross domestic product (GDP). To determine economic growth, the GDP is compared to the population, also know as the per capita income.In economics, economic growth refers to the growth of potential output. It shows how a country is developing its economy. Economic growth is directly impacted by human capital, which is the level of school or knowledge attainment in a country. The cognitive skills of a population directly impact economic growth. In general, economic growth is recorded and studied over the short-run and long-run.

Per capita income can be used to determine the average per-person income for an area and to evaluate the standard of living and quality of life of the population. Per capita income for a nation is calculated by dividing the country's national income by its population.

To determine economic growth, change in per capita income between two consecutive year is calculated.