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Economic growth

An increase in the capacity of an economy to produce goods and services – measured by comparing GDP in different periods of time. Below is a table to illustarte the GDP growth rate for the UK from quarter to quarter from 2000 to 2015.

Economic growth is caused by increases in the productive capacity of an economy and is usually explained using AD/AS analysis. A key related definition is sustainable economic growth.

A good way of viewing economic growth is that:

  1. Positive shifts in AD will usually produce temporary economic growth and inflation i.e. unsustainable
  2. Positive shifts in LRAS will produce permanent and lasting economic growth with a minor impact on inflation i.e. sustainable 
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