Economic growth

Economic growth – definition

Economic growth is a macro-economic concept which refers to a rise in real national income, which is sustained over two consecutive quarters of a year.

Stable growth is a key macro-economic policy objective as it leads to higher standards of living and increased employment.  However, there are certain costs of growth, including increases in consumption and production externalities, inflationary pressure, and international trade difficulties.




Economic growth can be expressed in absolute terms, such as increasing from $400bn to $410bn, or in percentage terms, such as growing by 2.25%. Tracking changes in percentage term is, clearly, more useful for comparative purposes. Over time an economy’s ‘trend rate of growth’ can be estimated which indicates the average rate of growth when seasonal and cyclical factors are eliminated.

Gross Domestic Product – GDP – is perhaps the most commonly used way of measuring growth. Typically for most countries, GDP can be estimated in three ways:

  1. The output approach
  2. The expenditure approach
  3. The income approach