A nation’s economy grows when production of goods and services increases over one period compared to the previous. The measure of the increase is called gross domestic product (GDP). GDP includes all the market value of everything produced within a country’s borders, so that even a small difference in a growth rate can have a big impact on how much people make and the quality of their lives.
Economic growth can happen in a number of ways, but sustainable long-term economic growth depends on better use of available resources—land, labor, and capital. The best way to do that is by raising productivity. Technology is the most obvious example, but there are other ways to improve productivity such as reducing waste or increasing the efficiency of existing processes.
Getting the most from available resources helps alleviate the sting of scarcity. In other words, it reduces the amount of money needed to get what we want. The economy is like a pie, and the more slices there are to go around, the better everyone’s quality of life.
There are limits to how much economic growth can happen by adding more of each resource. More land and more labor may lead to higher GDP, but that won’t necessarily increase the standard of living for everyone in a country. Sustainable economic growth usually happens when more value is extracted from the existing resources—such as by using more efficient machinery or finding new sources of energy—and that extra value can be distributed equally among everyone in a country.
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