GDP growth is the measurement of the percentage change in GDP from one year to another. It is a metric used to measure the growth of a countries income over time.
Causes of GDP growth
- Technological progress
- Population growth
- Positive aggregate demand shocks
Above is a non-exhaustive list of reasons why we might observe GDP growth. The main cause of GDP growth is technological progress. As countries become smarter and progress technologically, they learn to produce goods and services more efficiently and thus produce more output.
Population growth will cause economies to grow as there is more labor for production. However, population growth does not necessarily mean that living standards are increasing for each individual citizen. If the population growth is larger than the GDP growth, there will be less output per person. Therefore, GDP per capita growth is a better metric for understanding changes in living standard of the average citizen.
In the short run, positive increases to aggregate demand can cause increase in aggregate demand. Conversely, negative shocks to aggregate demand can cause GDP growth to decrease. If this happens for two quarters, it's defined as a recession.
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