SUMMARY

The Gross Domestic Product

• The gross domestic product (GDP) states the value of national output each year.

• The expenditures approach to calculating GDP tallies spending by consumers, businesses, and the government.

Measuring Economic Growth

• Economic growth occurs when the real GDP or real GDP per capita increases over time.

• Trends in a country's business cycle can illustrate periods of positive economic growth or negative growth.

• The main benefits of economic growth are an improved standard of living and quality of life for people.

Determinants of Economic Growth and Productivity

• The virtuous cycle of savings and investment is the wellspring of business formation, job creation, and economic prosperity.

• The efficient use of natural, human, and capital resources expands an economy's ability to produce goods and services.

• Entrepreneurship and new knowledge jump-start innovation and new business activity.

• A favorable economic environment includes a well-developed infrastructure, supportive economic institutions, and macroeconomic stability.

• Good governance improves incentives for people to participate in the formal economy by leveling the playing field.

Limitations of Economic Growth

• Economic growth can widen the income gap and wealth gap between society's richest and poorest people.

• Economic growth can intensify environmental stresses associated with ecosystem decay, climate change, and resource depletion.