What is economic growth?
Economic growth is an increase in the total output of goods and services produced by an economy over time. It is normally measured by the change in Gross Domestic Product (GDP), the total value of everything produced within a country in a year. When real GDP rises, the economy is growing.
Key idea
Economic growth = a rise in real GDP. Real GDP removes the effect of inflation so that only genuine increases in output are counted.
The business cycle
Growth is not steady. The business cycle describes the ups and downs of an economy: a boom of fast growth, a recession when output falls, a period of recovery, and slower growth or a slump. A recession is often defined as a fall in real GDP over two quarters in a row.
Benefits and costs of growth
Growth can raise living standards, create jobs, and give governments more tax revenue to spend on services. However, rapid growth can bring costs such as higher inflation, greater use of resources, and damage to the environment through pollution.
Remember
- Higher GDP does not always mean everyone is better off if income is shared unequally.
- Growth may harm the environment if it is not managed carefully.