What causes GDP increase?

What are two factors that can cause the nation’s real GDP to increase in the short run?

b. What are two factors that can cause the nation’s real GDP to increase on the long run?

GDP is Gross Domestic Product. This is the sum of all the goods and services produced in a country. There are really only 2 ways you can increase GDP. First, have more people working. If a farmer owns 90 acres of land, but he can only plant 40 acres by himself, then if he hires a helper, he should be able to plant 80 acres of land, he's just doubled the amount produced. If he hires a 2nd hand then they should be able to plant the full 90 acres, either by planting 40 acres, 40 acres, and 10 acres, or by each planting 30 acres. The 2nd helper didn't increase production as much as the 1st, but there was still a net increase. However, if the farmer hires additional helpers, there won't be any increase, because all of his land can be planted by only 3 people.

This leads into the 2nd way to increase GDP, have people work more effeciently. If the farmer was able to plant 40 acres, but only had his seed and a shovel, then you could increase his productivity by giving him a horse and a plow. Using the horse and plow the farmer might be able to plant all 90 acres by himself.

What does all of that mean on a macro scale?

It means that if you reduce interest rates, you can make access to money easier, making it more likely that more farmers will end up with plows.

If the value of our currency drops relative to other currencies, it means that we increase demand for our products, because if the farmer can only sell 40 acres worth of crops each year, there really isn't any point to increasing his productivity.

Increasing productivity also allows us to reduce prices, because with the horse and plow, 1 farmer can now do as much as he and 2 helpers could do before. With the money he saves not hiring helpers he can pay for the horse and plow, save a little something for himself, and still reduce the price of the crops he sells.
Short run: If interest rates fall then in the short run you MAY see an increase in GDP as companies take advantage of lower financing costs to engage in new business actvitites. Or if government ramps up spending you'll likely see a rise in GDP as well. Both of these factors will theoretically (at least from some schools of thought) be offset by lower economic acitivity in the future to "payoff" for these short term binges.

Long Run: If more people are working (say through population growth), then ceteris paribus gdp should probably increase. Or if the same number of people are working but they're more productive (I make 5 widgets instead of 2) then GDP will increase.
I can not give you specifically 2 factors, short or long term.
But if you need to increase GDP you may pay attention to have more foreign investment. It is true specially in third world country or less developed country. Malaysia, S Koria got lots of development mainly because they got lot of foreign investment. A lot of factory and industries established on those countries and GDP grows fast.
Same thing is happening recently in India and China.
You can not have easy way to increase GDP, you need to implement easy rule for foreign investment. But for countries like USA , I don't know how to do it.
Because in USA UK, Germany, Japan, nobody will feel interested to invest from outside as lobour cost is high. May be somebody will write on it.

The answers post by the user, for information only, FunQA.com does not guarantee the right.

More Questions and Answers:

More Questions and Answers:
  • when did the pound note become obsolete?
  • why European countries are decreasing population?
  • Does any have data on the malaysian economy since 1970?
  • In a country's foreign policy what things can be added to increase economic activity. Give examples please!!
  • Describe three ways in which the Federal Reserve can change the money supply.?
  • What is the most capitalist country in the world and why?
  • What is the relationship between the real interest rates and the marginal utility of money at the 'trap'.
  • What is child labour ?
  • How to create a planning panel in which every strategical objectives are mentioned ?