Economic growth is when there’s a rise in a country’s total output or real Gross Domestic Product (GDP) over time. It’s an important measurement of a country’s health, but how widely the fruits of that growth are shared is also vital to its sustenance and progress.
Growth is important because it reduces the sting of scarcity—the condition that exists when there aren’t enough resources to produce everything everyone wants. In that situation, people and businesses have to decide which things they’re going to prioritize and what tradeoffs they will make. Every choice comes with an opportunity cost, which is the next best alternative that was given up in making a decision.
The most obvious way to increase production is through investment. This can take the form of physical capital, like buildings or machinery; human capital, such as education and training; or intellectual property, including inventions and patents. But a more powerful, long-term driver of economic growth is technological progress. This means using new ideas to improve the efficiency of existing inputs—increasing output per unit of input, such as a computer that can perform multiple tasks with one fewer piece of hardware than its predecessor.
Economic growth is usually measured by an outward shift in a country’s production possibilities curve, which is estimated by economists. The curve represents what a country’s economy can potentially produce if all its factors are working at their maximum potential. Economic growth can fluctuate over the short-run—that is, in a business cycle—and this is generally explained by variations in demand.
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