Economic growth has a range of benefits for individuals, the economy and the environment. It raises living standards and provides more opportunities for employment. It reduces poverty levels and improves access to education and healthcare. It also brings in more tax revenue (the fiscal dividend) that can be spent on merit goods such as infrastructure. However, it may lead to inequality in wealth and income for middle- and lower-class families if the benefits of economic growth are not widely shared. In addition, rapid growth can also put pressure on natural resources and accelerate prices to a point where they rise too quickly (inflation).
Whether a country’s economy is growing or not is important to governments and businesses, as well as for individuals who want to know how much more they can earn, spend and save. In general, people and companies are more likely to invest in new plants, equipment, computers and workers if they expect future economic growth. This investment leads to a rise in aggregate demand (AD), which in turn causes economic growth.
Economic growth is a measure of how much the economy, or the total market value of all products and services produced, is increasing over time. This is usually measured in terms of real gross domestic product, or GDP. The two main ways to measure GDP are using the production approach, which measures all the output that is created, or the expenditure approach, which counts only what consumers spend on goods and services.