If the economy grows faster than it has capacity to, prices will rise quickly and things become more expensive. This happens when people want to buy more than shops and factories can supply. When the economy is growing, this means people are spending more.

Expansion, in economics, an upward trend in the business cycle, characterized by an increase in production and employment, which in turn causes an increase in the incomes and spending of households and businesses.

A government can try to influence the rate of economic growth through demand-side and supply-side policies, Expansionary fiscal policy – cutting taxes to increase disposable income and encourage spending. However, lower taxes will increase the budget deficit and will lead to higher borrowing.

Firstly a strong economy implies: A high rate of economic growth. This means an expansion in economic output; it will lead to higher average incomes, higher output and higher expenditure. Low and stable inflation (though if growth is very high, we might start to see rising inflation) Low unemployment.

Very simplified, the economy is the flow of goods and money between people, businesses and the government. A good economy is the opposite, low unemployment and good business growth. People aren’t holding onto their money as much so the incomes of businesses grows, allowing them to expand and hire more people.

about 2 to 3 percent

When the government decreases taxes, disposable income increases. That translates to higher demand (spending) and increased production (GDP).

GDP is important because it gives information about the size of the economy and how an economy is performing. The growth rate of real GDP is often used as an indicator of the general health of the economy. In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well.

The four components of gross domestic product are personal consumption, business investment, government spending, and net exports. 1 That tells you what a country is good at producing. GDP is the country’s total economic output for each year. It’s equivalent to what is being spent in that economy.

Consumption expenditure by households is the largest component of GDP, accounting for about two-thirds of the GDP in any year. This tells us that consumers’ spending decisions are a major driver of the economy.