Keeping economic growth chugging along is a top priority for government leaders, both domestic and foreign. High growth allows businesses to expand and hire more workers, and it raises household incomes and consumer spending so that people feel better off. In contrast, a slowdown or even a recession can mean higher unemployment and lower incomes.
The best way to measure economic growth is with gross domestic product (or GDP). It adds up the market value of all the goods and services produced in a country during a period, including business investment and net exports. GDP is volatile from quarter to quarter, as it is affected by such things as the weather and changes in inventories. A surge in imports, which are subtracted from GDP, shaved about a percentage point off last quarter’s growth.
Another measure of economic growth is productivity, which measures the amount of output that a worker produces per hour worked. Labor productivity grew much faster in the decades after World War II and the late 1990s than it has recently, and many economists blame President Trump’s policies for the slowdown.
A more subtle but important factor is the price level. When prices go up, the dollar buys more goods and services, which increases GDP. However, inflation also erodes the value of savings and slows economic growth. Inequality is also linked to economic growth, although that link is less clear than it is with inequality between men and women or between rich and poor countries. In the early phases of industrialization, when physical capital accumulation was a key driver of growth, inequality boosted growth by directing resources toward individuals with a greater propensity to save.
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