Economic growth refers to the increase in productive capacity of an economy. It can be shown with an outward shift in the production possibility curve or an outward shift in the aggregate supply curve. Economic growth is an increase in real GDP for a country over a given time. The term ‘real’ means that the output data has been adjusted to remove inflation. One country that has high economic growth is China. This is because they have a high output and, exports more than they import. There are a lot of job opportunities so if economic growth exceeds population growth, there will be an increase in GDP per capita. As people have more money, they will spend more meaning that the economy can grow.
One benefit of economic growth is that there will be a reduction in poverty. As the economy grows, there will be a higher production and consumption of material goods and services. Economic growth can help reduce ‘relative poverty’ in developed countries since firms are more likely to take on more labour and so unemployment should fall. A major cause of relative poverty is unemployment. The European commission defines relative poverty as people receiving less than 60% of median earnings for an economy.
Another benefit of economic growth is new products and improved quality of products. Most economic growth is due to technological innovation. This means that they increase the range and quality of goods and services available to the public. Examples of this are touch screen products such as the iPod, mobile phones, quality of the internet and new vaccinations against virus’s. Companies that have increased their range and quality of products are Apple, which bring out new versions of ipod’s, mobile phones and tablets.
Redistribution policies are easier to implement because incomes increase so it is easier for the government to redistribute income