Economic growth means that the quantity of goods and services produced in a country increases over time. This includes both consumer spending and business investment. Increased consumer spending can be driven by rising wages, reduced prices, increased savings or a combination of these. Business investment may include building new manufacturing plants, purchasing trucks, investing in computer software or undertaking research and development. Increased investment can boost employment and help to reduce unemployment. Economic growth is also associated with an increase in tax revenues, which can be used to fund public services such as education, pensions and healthcare. Higher growth can also help to reduce government debt.
One of the most common measures of economic growth is gross domestic product (GDP). GDP reflects the total dollar value of all the goods and services produced within a country’s borders in a year. It is usually measured in ‘nominal’ terms, which takes into account both changes in volume and price. Economists tend to focus on’real’ economic growth, which is a measure of increases in the volume of goods and services without taking into account changes in prices.
Other factors that can drive economic growth include increasing household wealth, which can encourage household spending. Introducing new technology can increase the productivity of workers, which in turn will lead to higher output. Cutting red tape and bureaucracy can make it easier for firms to operate, which should also lead to growth in the economy. Finally, reducing interest rates can make it cheaper for households to borrow money, which should encourage spending and increase aggregate demand.