What is Economic Growth?


Economic growth is an increase in the productive capacity of an economy. It is measured by comparing the GDP (total value of goods and services produced in an economy) in one year to GDP in the next. In the short run that means increasing aggregate demand, but in the long run growth can only continue if the capacity of the economy to produce goods and services is increased. This is done with supply side policies that shift the long run aggregate supply curve right.

Calculating Economic Growth

To calculate economic growth you need to be able to calculate a percentage change

formula for calculating percentage change

Don't forget that if GDP goes down then the percentage change will be negative

Try it yourself:

In 2013, UK GDP was approximately £1,655 bn and in 2014 it was approximately £1,698 bn. Calculate the annual growth rate:

steps for calculating economic growth rate

UK Target

In the UK we aim for sustainable economic growth. There is no formal number for this but around 2.5% annual increase in GDP is sustainable year on year. Typically the actual rate of growth fluctuates around this but this is about the long term trend rate of growth



UK % Change in GDP

Published in The National Economy