Economic growth is an increase in real GDP per capita over time. This is visualized through an outward shift at the PPC and the LRAS.
Definitions
- GDP Per Capita: GDP divided by the size of the population, which is equivalent to the GDP per person
- Productivity: output per worker
Todayβs workers are more productive due to changes in physical capital, human capital, and technology. This is known as capital stock formation. Economic growth is usually measured by changes in the level of capital stock formation.
This is seen in the below graph. New technology helps boost the productivity and real GDP of workers, irrespective of the capital per worker.
Economic growth is usually represented by an upward shift of the PPC, or a rightward shift of the long-run aggregate supply curve curve.
