Quick questions on Economic growth and living standards - TCE Economics (Tasmania)

Growth is measured as the annual percentage change in real Gross Domestic Product. Real GDP strips out inflation so that we see genuine changes in the volume of output rather than just higher prices.

Growth comes from two broad sources. The first is increasing the quantity of resources: a larger labour force from population growth or higher participation, and a bigger capital stock from investment. The second, and more sustainable, source is productivity: producing more output per unit of input through better technology, skills, infrastructure and work practices. In AD-AS terms, demand-side factors can lift output toward capacity in the short run, but only supply-side improvements shift the production possibility frontier and aggregate supply outward for lasting growth.

Material living standards refer to the quantity of goods and services people can consume, closely tied to real income per person. Growth tends to raise material living standards: higher output means higher incomes, more employment and greater government revenue to fund services. Decades of growth explain why Australian households today consume far more than earlier generations.

Non-material living standards capture quality of life factors that are not bought and sold: leisure time, health, environmental quality, safety and life satisfaction. The link between growth and these is mixed. Growth can fund better healthcare and education, lifting non-material wellbeing. But the pursuit of growth can also lengthen working hours, increase stress, and generate pollution and congestion that reduce wellbeing.