Introduction to GDP Growth Rate
GDP Growth Rate is also known as the Economic Growth Rate, and it measures the change in the GDP of the country in comparison to an earlier period. The amount of change is measured in percentage (%), which serves as a determinant of economic health in the country and the possible growth in the future.
Understanding GDP Growth Rate
Gross Domestic Product takes into account the final prices of all goods and services produced in the economy in a year. The GDP of a certain period, when set against another, can show a comparison that can be measured using the given formula: Economic Growth = (GDP 2 - GDP 1) / GDP 1 The result is expressed in a percentage. If the result is positive, it means the economy is growing by the said percent. If the growth rate is 2 percent from the previous quarter to now, it means that the economic activity has risen by 2%, either due to increased Government expenditure, higher retail consumption or in exports and imports.
Highlights of GDP Growth Rate
- The GDP taken into account to measure the change is Real GDP, not nominal. This is because Real GDP adjusts inflation to the buying power and gives a clearer picture on the demand and consumption.
- Growth rate measurement is necessary to understand the nature of the economy and the direction it may take in the upcoming years.
- It becomes useful for economists and investors to understand the favourability of sectors and industries and their mirror impact on employees and consumers.
