The simplest definition of economic growth is an increase in real gross domestic product (GDP) (that is, GDP adjusted for inflation). The growth rate of real GDP is the percentage change in real GDP from one year to the next. We can express the rate of growth in, for example, the period 2004-2005, as follows:

For purposes of evaluating how economic growth can feed into economic development it is often helpful to focus on the growth rate of GDP per capita—that is, output per person—rather than simply on overall output. Mathematically, GDP per capita is expressed as:

Thus, for example, an economy that has a GDP growth rate of 4% and a population growth rate of 2% would have a per capita GDP growth rate of 2%. The per capita GDP growth rate is especially important because it indicates the actual increase in average income being experienced by the people of the country. If a country had a 2% GDP growth rate, but a 3% population growth rate, its per capita GDP growth rate would actually be negative, at -1%. The people would on average be getting poorer each year, even though the overall economy is growing. A more positive way of putting it is that, for peopleâ's incomes on average to increase over time, the GDP growth rate must exceed the rate of population growth.

In terms of the Aggregate Supply and Demand (ASR/ADE) graphs, economic growth can be shown as a rightward shift of the ASR, increasing the economyâ's maximum capacity (Figure 1). If this kind of increase in aggregate supply took place without any shift in ADE, its effects would include growth in output and a declining rate of inflation. In practice, however, economic growth is usually accompanied by, and at least in part is often caused by, an increase in aggregate demand. Thus a more typical pattern for economic growth would be for both the ADE and ASR curves to shift to the right. In this case output clearly rises, but the effect on inflation is ambiguous.

• Modeling Economic Growth