- Define and explain Economic Growth in your own words
- Use key terms such as GDP accurately
- Apply what you have learned to new examples and questions
- Avoid the common mistakes learners make with this topic
Macroeconomics looks at the economy as a whole: total output, the general price level and national employment. This chapter covers the three big indicators — growth, inflation and unemployment — and the policies used to manage them.
This lesson focuses on Economic Growth: learn how GDP measures growth and why it matters.
Learn how GDP measures growth and why it matters.
Key ideas
Growth and the business cycle
Real GDP growth means the economy produces more, which can raise living standards. Economies move through a business cycle of boom and recession; a recession is commonly defined as two consecutive quarters of falling GDP, bringing falling incomes and rising unemployment.
Policy trade-offs
Governments use fiscal policy (tax and spending) and the central bank uses monetary policy (interest rates) to manage demand. Cutting interest rates boosts spending and jobs but risks inflation; raising them fights inflation but may slow growth and raise unemployment — policymakers constantly balance these trade-offs.
Key term — GDP: Gross domestic product: the total value of goods and services produced in a country in a year. Its growth rate measures economic growth.
What does GDP stand for and what does it measure?
Gross domestic product — the total value of goods and services produced in a country in a year.
Answer: Gross domestic product — the total value of goods and services produced in a country in a year.
- Thinking GDP measures happiness GDP counts output, not wellbeing: it ignores unpaid work, the environment and how income is shared.
- Assuming low interest rates are always good Cheap borrowing boosts spending but can fuel inflation and asset bubbles — rates must suit economic conditions.
Practice
5% (£10 ÷ £200 × 100).
Demand-pull: excessive consumer spending. Cost-push: rising oil or wage costs.
It erodes the real value of savings — money buys less each year.
Raise interest rates, making borrowing dearer and saving more attractive, which cools spending.
Quick check
Which of these best defines "GDP"?
Give one cost of unemployment to society.
- Economic Growth: learn how GDP measures growth and why it matters.
- Growth and the business cycle: Real GDP growth means the economy produces more, which can raise living standards.
- inflation: A sustained rise in the general price level, which reduces what money can buy.
- Watch out for: thinking GDP measures happiness