Economic Growth

Economic growth is a crucial concept in economics and is an important topic for the CFA Level 2 exam. It refers to the increase in the production of goods and services in an economy over time, typically measured by the change in real GDP.

Why Economic Growth is Important:
1. Improved living standards: As an economy grows, it can lead to higher incomes, better education, and improved healthcare for its citizens.
2. Reduced poverty: Economic growth can help lift people out of poverty by creating job opportunities and increasing wages.
3. Increased investment opportunities: A growing economy attracts more investment, which can further stimulate growth and development.

Factors Influencing Economic Growth:
1. Physical capital: Investments in infrastructure, machinery, and technology can boost productivity and economic growth.
2. Human capital: A skilled and educated workforce contributes to increased productivity and innovation.
3. Natural resources: The availability of resources such as land, water, and minerals can impact economic growth.
4. Technological progress: Advancements in technology can lead to more efficient production processes and the creation of new products and services.

Exam Tips: Answering Questions on Economic Growth
1. Understand the key concepts and factors influencing economic growth.
2. Be able to differentiate between short-term fluctuations and long-term trends in economic growth.
3. Analyze the impact of government policies, such as fiscal and monetary policies, on economic growth.
4. Consider the role of international trade and globalization in promoting or hindering economic growth.
5. Use real-world examples to illustrate your points and demonstrate your understanding of the topic.