IB International Economics HL 2025 – 400 Free Practice Questions to Pass the Exam

Economic growth is primarily measured by an increase in the production capacity of an economy, typically represented by the rise in Gross Domestic Product (GDP). This growth indicates that an economy is able to produce more goods and services than before, reflecting improvements in efficiency, technological advancements, and higher levels of investment.

When an economy's production capacity increases, it often leads to more job opportunities and potentially lower unemployment rates, as firms may need to hire more workers to meet the rising demand for goods and services. However, while lower unemployment could be a positive consequence of economic growth, it is not the defining characteristic of growth itself.

Relying solely on a rise in disposable income does not encompass the broader concept of economic growth. Disposable income may increase due to various factors, including tax changes or wage adjustments, without necessarily indicating an overall growth in production capacity.

Lastly, an increase in prices of goods and services relates more to inflation than to economic growth. While economic growth can accompany inflation, they are distinct concepts. Economic growth focuses on the real output of the economy, while inflation deals with the price level.

Thus, the correct understanding of economic growth centers on the increase in the overall production capacity of an economy.