Economic growth is the steady increase in a country’s gross domestic product (or GDP) over time. It is one of the most important and well-understood concepts in modern economics, and is considered an essential part of any healthy economy.
It can be measured in terms of nominal economic growth, which takes into account both increases in production volume and price changes, or real economic growth, which is an increase in the volume of goods and services produced without changing prices. Economists typically use the latter, which better reflects how much people are actually producing at any given moment.
Three main factors create economic growth: more capital, more labor or making better use of existing resources (often referred to as productivity). Growing capital increases economic output through investments in productive assets such as factories and equipment. Increasing labor produces more output through increases in human capital, such as increased education and training. And finally, boosting productivity through innovation and enterprise is crucial to sustainable economic growth. This can be achieved by improved resource allocation, such as when economies of scale allow firms to expand, or when discrimination disappears and labor moves where it is most valuable.
Increasing output also makes it possible to improve living standards by reducing poverty, improving working conditions and lowering unemployment rates. In addition, economic growth has lowered the cost of living for many poorer people by lowering prices, especially for food and clothing. This has reduced the burden on low-income households, who spend a high percentage of their incomes on these basics.
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