What is Economic Growth ?

Economic Growth Takes Place when

1. There is Increase in the national Income of a Country
2. Or Increase in Country’s Productive Capacity

To understand the concept of Economic Growth, we use many tools like that of the  Production possibility Curve. Let us first describe this simple concept :

Production Possibility Curve

The PPC represents a Boundary in  the sense that it shows the current availability of resources and technical knowledge, a country cannot produce beyond its potential capacity. So the PPC is therefore a Short Run Diagram; in the long run the PPC can be increased. So it is shifted forwards or rightwards. It is generally considered that country’s PPC curve Shifts forward but there are certain possibilities that it may go leftwards.

For Example: Countries that are going through warfare, Lets take Afghanistan whose Aggregate Demand decrease to a very high level during the war period and even after the war. We can also take another example of Revolution as in the country of Iran during the Khomeini revolution which flew a lot of foreign investment and a decrease Aggregate Demand during his regime. Such factors of war, natural disaster or war basically affects the factors of Consumption, Investment and Government Expenditure that as a consequence affects the Aggregate Demand which slows down the economy.