You’ve probably heard of personal growth or portfolio growth, but economic growth is a bit more abstract. The term refers to an increase in a country’s wealth, measured as its gross domestic product (or GDP). GDP includes all the money spent by consumers, businesses, and governments within a given period.
It can be measured on a quarterly basis, but is often quoted as an annual rate. This compares the change in GDP from one quarter to the next, which is then multiplied by four to get an average annual growth rate.
The most obvious way to measure economic growth is by looking at a country’s GDP. This includes all the money that people spend and invest in goods and services.
Another way to measure economic growth is by examining the country’s resource productivity. This measures how much value is created from a certain amount of resources such as land, labor, and capital. For example, a computer built today requires less material than a computer built 10 years ago, but it produces more value. Similarly, the more skilled workers you have, the greater your labor productivity.
While a growing economy is good, it’s important to understand what makes an economic growth rate sustainable. For instance, too fast of a growth rate can cause inflation or overheating. In addition, high growth rates may also lead to a recession because they require more spending than a country’s current income can produce. International discord, such as rising trade tensions, can slow economic growth as well. But long-term policies like reducing red tape and taxes can help to boost actual growth rates.