Economic growth is a central goal of most elected officials, business leaders, and individuals around the world. Growth usually means more jobs, higher wages, and a higher standard of living. If an economy is growing slowly or even shrinking, companies will spend less and people will earn less and feel worse off.
Increasing the productivity of labor, land and natural resources, capital equipment, and entrepreneurship is one way to generate economic growth. This type of growth is typically driven by innovation and improved technology, which allow for the development of new goods at lower cost.
Another source of growth is increased population, which drives consumption and business investment and allows for more workers to participate in the workforce. This type of growth is generally driven by higher birth rates, a rising global middle class, and immigration.
A third way to produce economic growth is through increased saving. If enough people save enough, then the economy will grow by adding more capital to the productive mix. The growth in the capital stock can be used to purchase more production equipment, expand existing businesses, or create new ones.
A fourth and final source of economic growth is business cycles, which can have a significant impact on GDP growth over the short term. The duration and frequency of a cycle is often determined by the behavior of financial markets and the underlying economic fundamentals.