The part of economic theory that seeks to explain (and hopes to predict) the rate at which a country's economy will grow over time. Economic growth is usually measured as the annual percentage rate of growth in one or another of the country's major national income accounting aggregates, such as Gross National Product or Gross Domestic Product (almost always with appropriate statistical adjustments to discount the potentially misleading effects of price inflation). Just about any country's economy will show sizable year-to-year and quarter-to-quarter fluctuations in its economic growth rate, but economic growth theorists tend to concentrate their efforts on analyzing and explaining the smaller variations in the longer-term trend or average rate of economic growth over periods of a decade or more. They leave explanation of the shorter-term fluctuations around the longer-term trend to specialists in business cycle theory because investigation has shown that the predominant influences on short-term growth rates seem to differ in important ways from the determinants of an economy's long term average growth performance. It might also be added that the political effects of variations in long range economic growth rates tend to be substantially different from the political effects of the booms and busts of the business cycle.
The short term ups and downs of the business cycle have dramatic effects on popular perceptions of the country's economic well-being. In a recession, hundreds of thousands or even millions of people may become unemployed and suffer dramatic declines in their incomes for the duration of the crisis -- usually for a period of somewhere between six months and one-and-a-half years before more normal economic conditions return again. Yet over the long haul, even rather small increases or decreases in the trend rate of economic growth will have much more profound and enduring effects on economic production and hence on the material living standards of the population. As an illustration, consider the following: During the period since the end of World War II (1946 to 1999-I), the growth rate of GDP for the United States (corrected for inflation) has averaged about 3.3% per year. Assuming that the typical undergraduate student reading this text was born in 1979, the growth rate of the US economy over his or her lifetime has averaged a slightly lower 2.7% per year - a difference of "only" 0.6 percentage points per year. But if the US had been able to maintain the same average growth rate from 1979 to 1999 that it had enjoyed during 1946 to 1978 (about 3.6%), 1998 GDP would have reached 9.152 trillion 1992 dollars worth of goods and services instead of the 7.552 trillion dollars of production actually achieved. That means that the income of the average American household in 1998 (and every single year thereafter) could have been more than 20% higher than it actually turned out to be if only a way could have been found to prevent this seemingly slight decline in the trend rate of economic growth. And if the US economy had somehow managed to average the slightly higher growth rate of an even 4% for the whole postwar period, the income of the average American household from 1998 on could have been about half again as much over what was (and will later be) at their disposal. More...