Economic Growth Rate

Published Mar 26, 2023

Definition of Economic Growth Rate

The Economic Growth Rate is the percentage change in the real output of an economy over time. It is a measure of how fast an economy is growing or shrinking. The growth rate is usually calculated on an annual basis and is expressed as a percentage. It is arguably the most common way to measure a country’s economic progress.

Example

To give an example, let’s consider two countries, Country A and Country B. In the first year, Country A had a GDP of USD 500 billion, while Country B had a GDP of USD 200 billion. In the second year, Country A’s GDP grew to USD 550 billion, while Country B’s GDP grew to USD 220 billion.

The economic growth rate for Country A can be calculated as follows:
(GDP in Year 2 – GDP in Year 1) / GDP in Year 1) x 100%
= (($550 billion – $500 billion) / $500 billion) x 100%
= 10%

Similarly, the Economic Growth Rate for Country B can be calculated as follows:
(GDP in Year 2 – GDP in Year 1) / GDP in Year 1) x 100%
= (($220 billion – $200 billion) / $200 billion) x 100%
= 10%

In other words, the economies of both countries grew at a rate of 10% between the two years.

Why Economic Growth Rate Matters

The growth rate plays a crucial role in a country’s economic development. It indicates how well an economy is doing and can be used to determine how well it is performing in comparison to others. A higher growth rate can lead to more job opportunities, increase salaries, boost investment, and provide greater economic stability. That’s why most governments and policymakers are constantly striving to achieve higher rates of economic growth, as it directly impacts their citizens’ quality of life.