Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is meant by economic growth?

1. An increase in the economy's infrastructure

2. An increase in the factors of production

3. An increase in government spending only

4. An improvement in tax collection

The correct answer is: An increase in the factors of production

Economic growth refers to the increase in an economy's capacity to produce goods and services over time. This growth is commonly measured by the rise in the Gross Domestic Product (GDP), which reflects the total value of goods and services produced within a country. An increase in the factors of production—such as land, labor, capital, and entrepreneurship—directly contributes to this concept of growth. By enhancing the quantity or quality of these resources, an economy can improve its productive capacity, resulting in higher output and, subsequently, economic growth. The other options touch on aspects that can influence the economy but do not encapsulate the broader definition of economic growth. An increase in the economy's infrastructure can support growth, but it is not itself the definition. Similarly, government spending and tax collection can affect economic performance but do not inherently define economic growth. Thus, recognizing the importance of the factors of production is essential for understanding what constitutes economic growth.