Is it basically the average person spent £100 last month, and £105 this month so the economy grey 5%?
In: Economics
Companies that make goods use a combination of things to make them: labor, natural resources, and capital (think machinery, computers).
In order to produce more, they must either make one input more efficient or increase the amount of input they use.
When an economy grows, that just means that total production grew. Whether it’s from increasing efficiency (productivity) or increasing input amounts, it doesn’t matter.
Effectively, an economy is measured by its total output (its total production). If that increases or decreases, then there is growth or shrinkage, respectively.
Your example is based on household consumption, which isn’t a great indicator of economic growth because it doesn’t capture non-household products, like structural goods or chemicals used in manufacturing.
An increase/decrease in the price of a good has no actual effect on the size of an economy until the quantity demanded for it shifts to compensate for the price change.
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