Economic Growth and Development

Economic growth — the increase in an economy's output over time — is perhaps the most important macroeconomic objective. It determines living standards, employment opportunities, and a country's global influence. This lesson examines the distinction between actual and potential growth, the key models of economic growth, and the factors that drive long-run prosperity.

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Actual vs Potential Growth

Key Definition: Actual growth is the annual percentage increase in real GDP — the rate at which the economy's output actually expands.

Key Definition: Potential growth is the increase in the economy's productive capacity over time — the rate at which potential GDP (the maximum output the economy can sustain without generating inflationary pressure) increases.