Economic growth is the increase in the value of a country’s output of goods and services. This can occur because the country produces more of a good, or because a good’s price rises. The country can also experience economic growth if the quality of its goods or services improves.
A nation’s capacity to produce can be measured by its GDP, which is calculated as consumer spending plus business investment plus government spending plus net exports. A nation can have a GDP grow at a rate that is quarterly, half-yearly or annual. An annual rate is the average of a quarter’s growth over four quarters.
Short-term economic growth can come from factors such as a recovery from a recession or temporary stimulus measures by a government (such as lowering interest rates to encourage borrowing). Such growth does not add new resources or improve the productivity of existing resources, and it must be sustained by increases in demand to avoid causing prices to rise too quickly.
Long-term growth in the economy can come from many different things, including technological advances, a growing population, and improvements in the labor force’s skills and knowledge, called human capital. Economies of scale and improved resource allocation can also help. For example, a factory can make more waffles with the same amount of physical capital if it has more workers and equipment.
Economic growth has brought benefits to many people, and it is a goal for governments and international organizations. However, inequality has also increased in some advanced economies and remains high in others still developing. This type of inequality is concerning because it can strain social cohesion and the ability of the economy to continue growing.