Let us take an example to define the concept of economic growth. The definition of “economic growth” is a long one. It basically is a measure of the improvement in standard of living over time. It is often called “Gross Domestic Product” (GDP). So economic growth can be depicted as the improvement in standard of living.
The gross domestic product, which represents the totality of a nation's production, can increase as a result of economic growth. Economic theories suggest that economies grow because people have money to invest. This investment creates more output which leads to rising prices of goods and services which produce surplus income for the owners of the goods and services (the producers of the economy).
There are several theories that govern the process of economic growth. The most important is the theory of increasing return on investment (ROI). According to this theory, the economy grows when resources are spent in productive activities that generate more income than were spent in earlier activities. For instance, if people spend their money building factories that produce widgets then there will be increase in the economy of widget production. If, however, they spend their money earning wages then economy of wage income will decline.
Another important economic growth concept is that of geographic advantage. This means that economic growth can be portrayed as the movement towards well-developed countries. It means that those economies that have lower income elasticity (due to low labor and capital cost) enjoy greater economic growth.
A still another economic growth concept is the concept of negative depreciation. This means that economic growth can be portrayed as the depreciation of the country's productive assets (land, buildings and inventory). This means that a country's currency depreciates when a country's goods and services are bought at the same price as these products were purchased a few years before. So, for instance, when an American buys a truck in Texas then the truck's price will be much less than the price when he bought it in Indiana. This means that the flow of capital is not decelerating.
In a general view, all the concepts of economic growth can be very complex. Still it can be stated that these concepts are closely related. They describe how people use and exchange their existing goods and how they make progress in improving their knowledge of the world. They also explain why economic growth is desirable and how it can affect societies. Thus, economic growth can be seen as the desired by-product of knowledge creation and the division of society into classes.