Economic growth is the increase in the total market value of output, usually measured as gross domestic product (GDP). It typically manifests itself as rising incomes that inspire consumers to open their wallets and drive a higher material standard of living.
Growth can be fueled by either growth in the number of workers or in labor productivity. But only growth in the latter has the ability to dramatically boost per capita GDP and incomes. The most important source of long-term economic growth is technological progress. It enables individuals to produce more with the same amount of land and natural resources, labor, capital equipment, and entrepreneurship. The benefits of such progress are immense.
Economic historians point to a number of institutional features that promote and sustain modern economic growth. These include low trade barriers and a free market for capital, goods, and services. They also highlight the importance of economic diversification, allowing firms to take advantage of new sources of demand and new opportunities for production.
When the economy is recovering from a recession, it can achieve high rates of growth because of the rapid rise in demand for goods and services. But that growth will eventually slow down once the unemployment rate returns to normal and capacity utilization recovers to full employment.
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