A good measure of economic growth is an increase in the production of a wide range of goods and services. But figuring out whether you have more money in your bank account today than yesterday is one thing; measuring it for an entire country is quite another. And that’s where the challenges of economic growth really begin.
The most common way to measure the total amount of economic output is by calculating gross domestic product (GDP). GDP includes consumer spending, business investment, government spending, and net exports.
GDP is the sum of all products and services produced by a society, including the extraction of natural resources. This makes it a broad and useful measure of economic activity, allowing us to compare the health of economies around the world.
However, it is important to distinguish between GDP and other measures of economic growth. GDP is the most popular measure, but there are other ways to quantify changes in a nation’s economy, such as per capita income or life expectancy.
The key to long-term economic prosperity is improved productivity. McKinsey research suggests that if companies continue to prioritize efficiency over growth and exacerbate structural drags on demand, the potential for increased productivity is limited.
The pace of economic growth is largely dependent on population growth, which increases the number of workers in the labor force. When population growth slows, a country must improve the productivity of each worker in order to keep economic growth on track.
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