Definition
- Economic growth
- Economic growth is a rise in real GDP, reported as the percentage change in real GDP from one period to the next.
- Not to be confused with: Potential growth
- Potential growth is a rise in potential GDP, the output an economy can produce by fully employing its labour, capital and technology.
Example
Can you think of a rise in real GDP that is not long-run growth?
In a recession real GDP falls from £500 billion to £480 billion, then climbs back to £500 billion over two years as firms rehire. That rise of about 4.2 per cent is real, and it is a recovery: output returning to a level the economy could already produce. Over the next decade new technology and a larger workforce raise potential GDP to £600 billion, and only that rise lifts what the economy can produce in the long run.
Test yourself
What is the difference between economic growth and potential growth?
Economic growth is a rise in what is produced; potential growth is a rise in what could be produced.