Why Both Growth and Development Matter to Us

A country's economy can grow larger or smaller as economic agents such as households, businesses and the government carry out economic activities. So how can we tell whether the size of an economy is growing or shrinking?

In general, changes in the size of an economy are judged by Gross Domestic Product (GDP).
GDP refers to the total market value of the final goods and services newly produced within a country's borders over a given period, that is, the market value of final goods added together.
If GDP, the value obtained by adding up the market value of all final goods produced within a country over one year, has increased compared with the previous year, that country's economy has grown in size and the economy has expanded.

The value obtained by multiplying the quantity and price of the final goods newly produced over a year is that year's GDP. However, if prices rose that year, that year's GDP can increase compared with the previous year even if the output of final goods did not increase.
But can we say the economy grew in this case as well?

If GDP increased because prices rose, rather than because the real economic activity of economic agents increased, we cannot say the economy grew.
Therefore, GDP including the price factor and GDP excluding the price factor are calculated separately, and then real economic growth is measured using the GDP that excludes the price factor.