Which term refers to the increase in an economy's ability to produce goods and services, leading to improved living standards?

The term that refers to the increase in an economy's ability to produce goods and services, leading to improved living standards, is economic growth. Economic growth is typically measured by the rise in a country's gross domestic product (GDP), which represents the total value of all goods and services produced over a specific period. When an economy grows, it generally means that more jobs are created, wages may increase, and individuals have access to better services and products. This overall enhancement in the economic environment allows people to enjoy a higher quality of life and, thus, improved living standards.

In contrast, inflation refers to a general increase in prices, which can erode purchasing power but does not necessarily indicate economic growth. A recession is characterized by a decline in economic activity, leading to a decrease in production and employment, which adversely affects living standards. Deflation, the opposite of inflation, refers to a decrease in prices and can be associated with reduced demand, typically resulting in negative economic effects such as increased unemployment and lower consumer spending. Hence, economic growth is the key term that encapsulates the positive trajectory in an economy that facilitates improvements in living conditions.