The economic growth definition refers to the overall increase in the production of products & services –in comparison to one period from another. It is known to be measured in real or nominal terms.
Conventionally, aggregate economic growth is known to be measured in terms of GDP (Gross Domestic Product) or GNP (Gross National Product). However, there are some alternative metrics also that are utilized.
In its simplest terms, economic growth can be referred to as the increase in the aggregate production in the given Economy. In most cases, not entirely, the aggregate increase in production tends to correlate with the overall increased average marginal productivity. This is known to lead to an overall increase in the respective incomes. As such, the consumers get inspired to be open about spending and buying more –leading to a higher quality of life or improved standard of living.
In terms of Economics, economic growth is mostly modelled to serve as the function of human Capital, physical capital, technology, and labor force. In simple words, increasing the overall quality or quantity of the working age population along with the tools utilized by them, and the resources they have access to –all of these factors combine to form Raw Materials, labor, and capital. Eventually, all of these factors would lead to increased economic outputs.
Economic growth can be generated in a few ways. One of the ways is by increasing the amount of capital goods physically in the given economy. When capital is added to the economy, it helps in increasing productivity of the entire labor. New, improved, and increased number of tools implies that workers are now capable of producing more output on a per period Basis.
However, it is important to consider two vital factors in this aspect. Someone in the economy is expected to firstly engage in some type of saving for freeing up the resources towards the creation of new capital. Moreover, new capital should be of the right type, at the right time, and in the right place for the workers to be capable of using the same productively.
Another method of generating economic growth is through technological improvement. Just like capital growth, relevant technical growth and its overall rate is significantly dependent on the overall rate of investment and savings. This is because the investment and savings are known to be vital for engaging in proper research and development.
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Another lucrative way of producing economic growth is by growing the available labor force. Right number of workers in given economy can increase the overall production of economic goods & services. Increasing the existing labor force also helps in necessarily increasing the total amount of output that is required to be consumed for providing the standard subsistence of the new workers.