Economic growth happens when there’s an increase in the production of goods and services for a given period compared to a previous one. It’s typically measured in terms of a country’s gross domestic product (or GNP) — but other metrics can also be used. The main reason that economic growth is important is that it often leads to a higher standard of living for the people within a nation. That’s because the people that make up a nation tend to see their incomes rise as economic growth occurs, and they can then use that money to buy things that make them happier.
Measuring economic growth isn’t easy, though. First, GDP doesn’t capture everything that adds value to a society. For example, caring for children doesn’t count if it’s done by parents (but it does if it’s carried out by paid childcare workers). Also, counting up an economy’s overall GDP can give a false picture as it can fluctuate from one period to the next depending on what kind of activities are taking place. For example, a big surge in economic activity at the start of the year is typically caused by businesses rushing to stock up on foreign goods ahead of rising tariff rates.
There are different types of economic growth, but most involve increasing the availability of resources or improving productivity. This can be achieved by growing the physical capital of a nation through investing in new tools and machines, or it can happen with the help of technological advances.