5.6 Economic Growth
Economic growth is a sustained rise in potential output, shown by rightward LRAS shifts and measured by growth in real GDP per capita.
Economic growth means the economy's productive CAPACITY increases, potential output rises. Graphically it is an outward shift of the production possibilities curve or a rightward shift of LRAS, and it is measured by growth in real GDP per capita, the best single gauge of living standards.
The sources are the inputs to the aggregate production function: more physical capital (tools, factories), more human capital (education, skills), a larger labor force, and better technology. Productivity, output per worker, is the engine: it grows when workers have more capital and better technology to work with.
Distinguish growth from recovery. Moving from a recessionary gap back to potential is a movement back TO full employment along existing capacity; growth is an increase IN capacity itself. Only the second shifts LRAS and the PPC.
Key terms for 5.6
Drag the curves above, or open the full Production Possibilities sandbox. Teaching this? Put this graph on your own class page, free.
Practice the math
Calling a recovery from recession 'economic growth.' Returning to potential output is a movement back to the curve; growth is an outward shift OF the PPC (a rightward LRAS shift).
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A full lesson plan for 5.6, with timings, a warm-up, guided practice and an exit ticket.
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