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Economic growth refers to the growth of production, seen in terms of actual and potential production capacity. Actual economic growth, also known as short term growth, is commonly measured in terms of a percentage change in the real Gross Domestic Product (GDP). The Production Possibility Curve (PPC) illustrates the resource and production capacity an economy can attain with the given amount of resources and level of technology.

The increase in government expenditure, such as the provision of subsidies to consumers, raises consumption and investment, so as to raise aggregate demand, production and national output. Consequently, production level contributes to an increase in the actualized production of goods and services, thus achieving higher actual economic growth.

Economics Tuition - National Income Accounting and Economic Growth - Diagram

Economics Tuition – National Income Accounting and Economic Growth – Diagram

As seen from the PPC, the increase in government spending contributes to the shift of the production level from point A to point B, thus attaining actual economic growth.

Simon Ng

Founder, JC Economics & General Paper Tutor at Economics Focus
JC Economics Tutor Simon Ng of Economics Focus has been teaching A Level Economics and A Level General Paper since 2003. Simon set up Economics Focus to assist students in their pursuit of academic excellence at the examination by providing economics tuition for H1 and H2 students. JC1 and JC2 students are inspired by Simon's clear teaching methods that enabled them to comprehend economics terms and concepts. Simon developed the Rational Thinking methodology to aid students to excel in their JC economics essays and CSQs.