Economic growth is the expansion of a nation’s overall output. When economies are growing, people earn and spend more, and everyone feels better off. When the economy is stalled or contracting, people don’t get as much done and feel worse off. That’s why economic growth is important to economists, public- and private-sector leaders, and individuals alike.
Many different things can affect economic growth, including the accumulation of physical and human capital, technological progress, and a host of other factors. But the most basic element of economic growth is something called “labor productivity,” which is how much gets accomplished by a given amount of labor—usually an hour’s worth or one dollar’s worth of goods and services.
The most popular measure of economic growth is gross domestic product (GDP), which is a broad measurement of the total amount of money produced by an economy over time. GDP is calculated by adding up all the purchases of finished and unfinished goods and services made by consumers, businesses, and governments. Some of the components of aggregate demand contribute to GDP more than others, and their contributions can vary over time. For example, consumer spending has a relatively large weight in GDP, and it tends to be quite stable. However, mining investment has a much smaller weight but can make large additions to or subtractions from GDP at different points in time, depending on the state of the mining industry.
Some researchers have used mathematical models to predict the timing of business cycles, and they often find that short-run variation in economic growth can be attributed to fluctuations in aggregate demand. Nevertheless, some experts have argued that short-term variation in economic growth can also be due to structural causes such as changes in the rate at which the economy produces its natural resources or the quality of its human capital.
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