Which option lists the two main drivers of economic growth?

• A. Increase in aggregate supply and increase in aggregate demand
• B. Increase in population and increase in government spending
• C. Decrease in taxes and decrease in subsidies
• D. Increase in unemployment and inflation

Answer: (A)

Economic growth comes from the economy producing more over time, and that depends on two big forces: the ability to produce more (productive capacity) and the level of demand for goods and services (aggregate demand). When productive capacity increases, the potential output rises because more capital, more workers, and better technology allow more to be produced—this shows up as a rightward shift of the aggregate supply side. When aggregate demand increases, higher spending on goods and services encourages firms to expand output in the short run, pulling real GDP up as well. When both of these rise together, real GDP growth accelerates. The option that lists an increase in aggregate supply and an increase in aggregate demand captures these two main drivers. The other choices describe factors or outcomes that don’t by themselves constitute the primary engines of sustained growth.