Economic growth is the change in the potential output of the economy. It is shown by a shift to the right of the production possibility frontier.

Economic growth could also be thought of as an increase in long run aggregate supply. The long run aggregate schedule shows the maximum output of the economy. Real economic growth would shift the LRAS schedule to the right.

Economic growth is usually measured by the change in real national income, although an increase in this figure may not actually indicate real growth, merely the utilisation of existing production capacity.

Some people believe that the benefits of economic growth are outweighed by the costs. Pollution, congestion and a stressful lifestyle are too high a price to pay for a greater number of consumer durables.

Economic growth provides an important was of improving the living standards within the economy. A 2 ½ % growth rate will double national income every 28 years. It only takes 7 ½ years to double national income at 10 % growth rates. Differences in growth rates can seriously affect relative living standards between countries.

National income is often used as the main indicator of standard of living within an economy. However, there are a great many other important components of standard of living, including political freedom, the social and cultural environment, freedom from fear of war and persecution and the quality of the environment. Therefore, it is not accurate to say that an increase in national income, or economic growth, will increase the standard of living within an economy. Increases in income, however, have led to the elimination of absolute poverty for most citizens in industrialised countries. A number of other significant affects have resulted from the increase in national income of the UK. Life expectancy has doubled over the last 300 years. Infant mortality rates have plummeted over the same period. Housing standards have improved, and literacy has also been improved. This is an important argument for economic growth. Economic growth is often seen as the only way to eliminate malnutrition, disease, bad housing and illiteracy in the Third World, where the majority of the population live in absolute poverty.

Despite the apparent benefits of growth, however, it is important not to ignore the disadvantages of economic growth. Economic growth creates large negative externalities. The quality of the physical environment may deteriorate. Economic growth is likely to result in higher levels of pollution. There is also increased pressure and stress associated with living in a developed economic environment, where a great emphasis is placed upon work, and achievement. Those who fail to achieve may suffer from feelings of failure, and this has led to higher suicide rates in industrialised countries. Economic growth may also lead to higher crime rates.

Perhaps the most significant argument against economic growth is that it is unsustainable. Economic growth results in greater consumption of scarce resources. However, proponents of growth would say that increased scarcity will increase the price of non-renewable resources, and this will result in a greater incentive to consume less, to explore for further resources, and to create new sources of energy. Furthermore, it is important to note that ‘Green’ politics tend to be the preserve of the affluent Western middle classes. These people might not be worried about a reduction of their incomes, though individuals living in absolute poverty would likely die if they saw any reduction in their incomes.

The zero-growth proposal argues that, because increases in measured GNP are accompanied by additional costs of pollution and congestion, the best solution is to aim for zero growth of GNP. The problem with this approach is that it does not distinguish between measured outputs that are accompanied by activities with social costs, and those which are not and give rise to no additional pollution and congestion. It does not provide an adequate solution to the problem.

Economic growth may or may not lead to increased welfare for the citizens of a country. It is likely that as economic growth takes place, some measures of welfare will increase, whilst others decline. It is the balance between these ‘goods’ and ‘ills’ which needs to be considered. The extent to which growth is desirable depends upon the values that are placed on variables such as greater consumption of goods and services and the social, cultural and physical environment.