The growth of an economy is important to economists and to everyone else who uses the tools of economics. It means people are earning and spending more, and generally feeling better off. It also helps them save more, which can help them deal with financial crises.
Various factors contribute to economic growth, but one big reason is that newer, better and more tools mean workers can produce more output in the same period. For example, a fisherman with a bigger net can catch more fish in the same amount of time as a smaller one. But in addition to new tools, the growth of an economy can be fueled by other forms of capital—such as behavioral tendencies toward greater social trust and reciprocity or political or economic innovations that make a business or service more efficient or attractive to investors.
Another way that an economy grows is through a multiplier effect. In simple terms, an initial increase in spending can lead to a much larger increase in GDP. For example, if someone in the economy spends $10 million on an energy project in a small town, that money can then be spent by the engineers and others who work on the project, which can then result in more spending, and so on.
A large difference in the level of economic growth between two countries can have a huge impact on the quality of life for their citizens. This is because of a mathematical rule known as the “rule of 72,” which states that if something grows at a rate of x percent per year, it will double in roughly 72/x years.