A more technical definition would go into the way that Economic Growth is measured - usually in terms of the Gross Domestic Product - the sum total of the value of a country’s output over the course of a year. However GDP figures can be misleading - for example, a growing economy may have rising output levels but also may have a growing birth rate which negates any positive effect on the standards of living. Alternatively, figures that show clear growth in terms of wealth may be ignoring the fact that inflation rates are rising also, thereby negating the power of said growth.

Normally, Real Income as used when looking at Economic Growth takes the GDP figures and then takes out the effect of inflation rates (by forming an index) thereby creating a reasonable set of statistics from which to draw conclusions.

Economic Growth is clearly seen as a desirable objective for all economies.

Some of the main advantages of economic growth include; higher levels of Employment or

However the negative and quite probable effect of manipulating the Interest Rates in this manner is to do with Inflation. Inflation is the sustained increase in the average price of goods/services in an economy over time. Increased Spending can be traced back to Increased Demand. If Aggregate Demand (appearing as spending) increases at such a pace that production cannot keep up, businesses will be forced to raise their prices in order to control it. This sort of Inflation is known as Demand-Pull Inflation.

- Due to workers and Trade Union Leaders putting pressure on firms to increase wages in accordance with inflation, Industrial Relations can deteriorate. If this leads to strike action in times of high demand, the consequences can be very bad indeed, causing prices to spiral upwards.

All in all, intervention in the interest rates could quite possibly increase Growth figures, but it could have a negative effect on the economy through its knock-on effect on Inflation Rates. Economists such as Milton Friedman and Keynes looked into gov’t intervention in the circular flow of money this way, and advised ‘prudent management’ of the monetary system.

Every government uses various policies based around the afore-mentioned factors to try to increase or at the very least stabilize growth rates.

- If wages weren’t accordingly increased, Real Earnings would effectively go down, i.e, the purchasing power of a wage is decreased so it is not of the same value anymore. Although wages are likely to be negotiated with significant rises in inflation rates, this problem does manifest especially in positions that aren’t particularly highly paid in the first place, increasing the poverty Gap and, in the worst cases, having a detrimental effect on the standard of living for individuals.

1) Full time Education and Training – This aims for people to gain skills and qualifications to help them prove themselves to be fit for work and to make them more employable.

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