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Overview

Economic growth is the increase in the level of national output - that is, the annual percentage change in GDP.

Causes of economic growth

Factor endowments

This refers to the quantity and quality of a county's factors of production.

Increase in the quantity of resources

The quality of labour and entrepreneurship can be improved through education and training and better health care. The quality of capital goods is improved as technology advances.

Population and productivity

Why do some countries grow and some stagnate? In a nutshell, growth rests on two building blocks: population and productivity. Population determines how many workers a country will have. Productivity, or output per worker, determines how much each worker earns.

The total output a country can produce given its labour force and its productivity is called potential output, and the rate at which that capacity grows over time is potential growth. So if the labour force grows 1 per cent a year and its productivity by 1.5 per cent, then potential growth is 2.5 per cent. Thus, an economy grows.

Technological progress

Technological progress is a very important source of faster economic growth. 

The same amounts of the factors of production can produce a higher output. 
New products will be developed, thus adding to output growth.

Labour productivity

This refers to the number of goods and services that workers produce in a given time period. It's no use equipping workers with the most advanced equipment in the world if they can't read the instructions. Education and training, both forms of human capital, are essential to productivity.

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Economic growth

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