Introduction

Economic growth is the increase in the level of potential output in the economy over a period of time and it can be shown by a rightward shift in the production possibility frontier (PPF) (Graph 1) and this will also shift the long run aggregate supply (LRAS) curve to the right (Mankiw and Taylor, 2011). Economic growth can also be measured by the change in the gross domestic product (GDP) and the change in the real national income which is the income that adjusted for inflation (Matthews, Powell and Parkin, 2012). The fluctuations in the economy are known as the business cycle which resulting the change in economic growth. The business cycle has four main phases, boom, recession, slump and recovery (Graph 2). In a boom, aggregate demand increase so firms will increase output and this will cause economic growth.

Type of growth

There are three types of growth in the economy, including actual growth, potential growth and trend growth. Actual growth is the changing of GDP over a period of time and it is affected by the change in the aggregate demand and the efficiency of the resources in the economy, potential growth is the rise in the quantity and quality of the resources in the economy and it is possible to happen without actual growth taking place, and finally, trend growth is the expected increase in potential output over time and it is a measure of how fast an economy can grow without considering inflation (Grant and Vidler, 2000). This essay will highlight the main causes, advantages and disadvantages of economic growth and consider various alternative measurements of economic growth which associated with the standard of living.

Causes of Economic Growth

Technological Progress

Economic growth happened because of a few factors, one of them is the technological progress. The increase in the productivity of technology can increase potential output by using the same amount of capital and employment (Sheffrin and Sullivan, 2006). When the economy has enough supply, consumers are able to spend more. Technological progress will also increase the productive efficiency as the cost of