4.4 Economic Growth

2026 📋 Syllabus Objectives

By the end of these notes, you should be able to:

  1. Explain the meaning of economic growth
  2. Explain how economic growth is measured
  3. Distinguish between growth in nominal GDP and real GDP
  4. Explain the causes of economic growth
  5. Discuss the consequences of economic growth

1. Meaning of Economic Growth

https://cambridgeassistant.com

Economic growth means that an economy is producing more goods and services over time than it did before. In simple terms, the country is getting richer and its output is increasing.

There are two types of economic growth you need to know:

🔹 Actual Growth

Actual growth is when a country increases its real output — meaning it actually produces more right now using the resources it already has.

  • Think of it as using idle or wasted resources (like unemployed workers or unused factories) and putting them to work.
  • On a Production Possibility Curve (PPC) — a diagram that shows the maximum output a country can produce — actual growth is shown as a movement from a point inside the curve to a point on the curve.
  • A point inside the PPC means the economy is not using all its resources (there is unemployment or inefficiency).
  • Moving onto the PPC means those resources are now being fully used.

Example: Imagine a country has many unemployed workers. If the government creates jobs and those workers start producing goods, actual output rises — that is actual growth.

🔹 Potential Growth

Potential growth is when a country increases its total productive capacity — meaning it becomes capable of producing more, even if it isn't doing so yet.

  • This happens when more resources become available or when the quality of resources improves.
  • On the PPC diagram, potential growth is shown as an outward shift of the entire curve.
  • The whole curve moves to the right, meaning the country can now produce more of everything.

Example: A country discovers new oil reserves, or invests heavily in new machinery and technology. Even before those resources are fully used, the country's maximum possible output has increased — that is potential growth.

Sign in to view full notes