Economic growth is an increase in the value of a country’s economy, as measured by its gross domestic product (or GDP). A common way to think about economic growth is that it’s how much more a nation produces in one period compared with another.
There are several different ways to generate long-term economic growth. One typical way is through the accumulation of physical capital, or putting money into something that will produce more in the future. For example, building a new factory is an investment that will generate more output in the future.
Another common source of economic growth is through technological improvements. These changes allow workers to produce more using the same stock of resources. For example, the discovery of petroleum fuel allowed cars to drive farther on a tank of gas than they could on coal. This type of growth can be very slow, however, and it is often dependent on the rate of savings and investments.
A third method for generating economic growth is growing the labor force. Adding more workers to the workforce generates more economic goods and services. For this to work, the new workers must be productive enough to earn a living and not simply consume all the output generated by the economy. This type of growth can also be very fast, as seen with the U.S. recovery from the Great Recession. This kind of growth is usually driven by the resumption of hiring after a recession or by businesses fully utilizing capacity that had been idled during the slump.