Economic growth is a rise in the amount of goods and services produced by an economy over time, as measured by national incomes such as gross domestic product (GDP). A growing economy reduces the sting of scarcity, which is caused by not having enough resources to meet everyone’s wants. It also increases the size of the pie, allowing each person to have a larger slice without having to sacrifice their own needs to those of others.
Economic growth can be driven by adding new labor to the workforce. An economy may also experience growth without increasing the number of workers by improving the productivity of existing workers. This can be done by using better tools and equipment or by training workers to do the tasks more efficiently. Another way to boost economic growth is through the discovery and development of new resources that can be used to make products or generate energy.
Lastly, economic growth can be spurred by reducing the costs of production. Governments can lower interest rates, making it cheaper to borrow money, which will spur production and increase consumer spending. This type of stimulus can only last for so long, however, as a high level of inflation will soon weigh on the purchasing power of consumers and slow economic growth.
Research on the determinants of economic growth is ongoing. Some researchers suggest that improvements in human and physical capital, which are the assets a nation owns that help it produce goods and services, are largely responsible for long-term economic growth. Other researchers point to a role for institutions, the societal norms and customs that guide a country’s behavior and shape its incentives.
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