Economic Growth and Equity

Economic growth and a fair distribution of income are both important goals, and they sometimes pull in different directions.

What is economic growth

Economic growth is an increase in real GDP over time, usually expressed as an annual percentage. It can mean either an increase in actual output (moving toward the production possibilities frontier or using AD to move toward LRAS) or an increase in potential output (an outward shift of the PPF or a rightward shift of LRAS). Only the latter is sustainable in the long run.

Causes of growth

Growth on the demand side comes from any rise in AD: more consumption, investment, government spending, or net exports. Growth on the supply side comes from increases in the quantity of factors (a larger labor force, more capital, newly discovered natural reso