Skip to content

Course home

Sign up

4.4.2 measurement of economic growth

Measuring growth

Definition

Economic growth rate: the annual percentage change in a country's real gross domestic product (real GDP).

The growth rate

  1. Using real GDP rather than nominal GDP removes the effect of inflation, so the figure reflects extra output.
  2. A positive figure means output rose, while a negative figure means the economy shrank, as in a recession.

Growth rate

Growth rate=ΔReal GDPReal GDP×100 \text{Growth rate} = \dfrac{\Delta \text{Real GDP}}{\text{Real GDP}} \times 100 Growth rate=Real GDPΔReal GDP​×100
Example
  • Suppose real GDP rises from £500bn to £515bn over a year.
Growth rate=515−500500×100=3% \text{Growth rate} = \dfrac{515 - 500}{500} \times 100 = 3\% Growth rate=500515−500​×100=3%
  • Real output rose 3%, so the economy grew by 3% that year.

Total versus per capita

  1. Total real GDP measures the size of the whole economy's output.
  2. Real GDP per capita divides total real GDP by the population, giving output per person.
  3. Per capita figures are the better guide to average living standards, because population can also change.

Real GDP per capita

Real GDP per capita=Real GDPPopulation \text{Real GDP per capita} = \dfrac{\text{Real GDP}}{\text{Population}} Real GDP per capita=PopulationReal GDP​
Example
  • Suppose real GDP is £515bn and the population is 50 million.
Real GDP per capita=515,000,000,00050,000,000=10,300 \text{Real GDP per capita} = \dfrac{515{,}000{,}000{,}000}{50{,}000{,}000} = 10{,}300 Real GDP per capita=50,000,000515,000,000,000​=10,300
  • Output per person is £10,300.
  • If total GDP grows 3% while population grows 1%, output per person rises only about 2%, so living standards improve more slowly than headline growth suggests.

Reliability of data

  1. Accurate growth figures depend on reliable output and price data.
  2. Unrecorded activity, such as the informal economy, can understate true output.
  3. Figures are often revised as fuller data arrive, so early estimates should be treated with caution.
Exam technique
  • State that growth is the % change in real GDP.
  • Use per capita figures whenever the question is about living standards.
Common Mistake
  • Do not measure growth using nominal GDP, as that includes inflation.
  • Do not ignore population, since total GDP can rise while output per person falls.
Self review
  • How is the economic growth rate calculated?
  • Why is real GDP used rather than nominal GDP?
  • What does real GDP per capita adjust for?
  • How can total GDP rise while living standards fall?
  • What does accurate measurement depend on?
PreviousNext

How was this guide?

Teach Genie

Review 4.4.2 measurement of economic growth by teaching Genie

Teach it back in your own words, spot gaps, and remember it better.

Start teaching
Genie and Baby Genie

Lesson

Recap your knowledge with an interactive lesson

8 minute activity

Start lesson

Economic growth rate is the annual percentage change in a country's real gross domestic product, or real GDP. A positive rate means total output has risen, while a negative rate means the economy has shrunk.

Real GDP is used because it removes the effect of inflation. Nominal GDP can increase merely because prices rose, even when the quantity of goods and services produced did not.

The growth rate compares the change in real GDP with real GDP at the start of the period. It is expressed as a percentage.

Growth rate=ΔReal GDPReal GDP at the start of the period×100 \text{Growth rate} = \frac{\Delta \text{Real GDP}}{\text{Real GDP at the start of the period}} \times 100 Growth rate=Real GDP at the start of the periodΔReal GDP​×100

Flashcards

Remember key concepts with flashcards

21 flashcards

Practice flashcards

What is the economic growth rate?

4.4.2 measurement of economic growth Revision Guide

  1. Intl A Level
  2. /Economics
  3. /4.4.2 measurement of economic growth

Revision notes for CIE Intl A Level Economics 4.4.2 measurement of economic growth: explanations and worked examples.

Revision guides