Growth theory
The part of economic theory that seeks to explain (and hopes to predict) the rate at which a country's economy will grow over time. Economic growth is usually measured as the annualpercentage rate of growth in one or another of the country's major national income accounting aggregates,such as Gross National Product or Gross Domestic Product (almost always with appropriate statistical adjustments to discountthe potentially misleading effects of price inflation). Just about any country's economy will show sizable year-to-year and quarter-to-quarter fluctuations in its economic growth rate, but economic growth theorists tend to concentrate their efforts on analyzing and explaining the smaller variations in thelonger-term trend or average rate of economic growth over periods of a decade or more. They leave explanation of the shorter-term fluctuations around thelonger-term trend to specialists in business cycle theory because investigation has shownthat the predominant influences on short-term growth rates seemto differ in important ways from the determinants of an economy's long term average growth performance. It might also be added that the political effects of variations in long rangeeconomic growth ratestend to be substantiallydifferent from the political effects of the booms and busts of thebusiness cycle.
The short term ups anddowns of the business cycle have dramatic effects on popular perceptions of the country's economic well-being. In a recession, hundreds of thousands or even millions of people maybecome unemployed and suffer dramatic declines in their incomes for the duration of the crisis -- usually for a period of somewhere between sixmonths and one-and-a-half years before more normal economic conditions return again. Yet over the long haul, even rather small increases or decreases in the trend rate of economicgrowth will have muchmore profound and enduring effects on economic production and hence on the material living standards of the population.
