Economic growth is the rise in real output per capita in a country over time. Economic output is based on the amount of capital, labor, natural resources and technology available. Policies that encourage the accumulation of these inputs can lead to economic growth. Economic growth is often measured by comparing GDP, the measure of total national expenditures, to population (real GDP per capita). The growth rate of both can be calculated as the percentage change in GDP divided by the percentage change in population.
The economy grew at a 2.3% annual pace last quarter, helped by higher consumer spending and investment in business equipment. But a surge in imports shaved off about 0.9 percentage point of the expansion. A drop in inventories and slowing population growth also weighed on the economy.
As a result, the economy hasn’t accelerated as much as expected. The ups and downs in economic growth are what economists call the business cycle, with expansions sometimes turning into stagnation or recession. Some countries, such as Japan and Germany, have experienced decades of steady economic growth. Others, such as China and India, have struggled to keep up with the West.
A key insight in this field is that different things can cause booms and busts, but most of these factors are not well understood. For instance, the OECD has found that economic growth is closely related to the ratio of savings to investments, which suggests that the more an economy saves, the more it can invest and grow.