GDP and economic growth

The term Gross Domestic Product (GDP) refers to the value of all goods and services produced in the country during a given period, usually a year. 

GDP is often used as a measure of how well we're doing as a country. If GDP falls then the country is not producing as much.

Another important measure that is of interest to many people is GDP per capita. This is the amount of GDP per man, woman and child in the country and is used to evaluate how well off New Zealanders are compared with people in other countries.

The rate of economic growth is another subject often discussed in the media. It's the “real” rate of growth of the economy as a whole and is measured by the percentage change in GDP less the inflation rate.

The rate of economic growth gives a general indication of the increase or decrease in the country's wealth over time and its people's standard of living.  

Put simply if wages grow at 1.8% per year net of inflation your real income will double every 40 years. If they increase at 3% per year thanks to faster economic growth, your income will double every 24 years.

Economic growth is boosted by increased productivity when individuals and businesses turn the same input into more goods and services. Every generation finds new ways to produce – often thanks to new technology or by working smarter.

Economic growth is also important for the government because as your income rises, you pay more tax, which makes it easier for the government to pay for the services it buys such as roads, schools and hospitals.

Summary

• Gross Domestic Product (GDP) is the value of all goods and services produced in the country within a given period.
• GDP per capita is the amount of GDP per person in the country.
• The rate of economic growth is measured by the percentage change in GDP less the rate of inflation.
• All of these measures tell us about how well the economy is performing.
• Countries like economic growth because it raises the standard of living.