Economic Growth Rate

What is Economic Growth Rate?

The Economic Growth rate meaning can be referred to as the total percentage change or fluctuation in the overall value of goods as well as services produced in the given nation during the particular period of time –in comparison to some earlier period. The economic growth rate as a parameter is utilized for measuring the comparative health of the given Economy over a specific period of time. The numbers are mostly compiled as well as reported either quarterly or annually.

Typically, the economic growth rate is known to measure the overall change in the GDP (Gross Domestic Product) of the nation. In countries that have economies that tend to be significantly dependent on foreign Earnings, the concept of GNP (Gross National Product) is utilized. The latter is known to take into account the overall net Income from the respective foreign investments.

Calculating Economic Growth Rate

Economic Growth Formula= (GDP2 – GDP1) / GDP1

Here, GDP is known as the Gross Domestic Product.

The formula helps in calculating the overall economic growth rate of the given nation. When the same gets tracked over a specific period of time. This rate is known to suggest the general direction of the economy of the nation along with the magnitude of its subsequent growth or contraction. It can also be used for projecting the respective economic growth rate for the year or quarter ahead.

An increase in the overall economic growth rate is mostly perceived as positive. If the economy reveals two consecutive Negative Growth rates quarterly, then the nation is believed to be in a state of Recession.

In other terms, if the given economy contracts by around 2 percent in comparison to the previous year, the overall population tends to experience a total reduction of around 2 percent in the income in the given year.

Why Do Economies Expand or Contract?

Economic growth is known to be boosted by several events or factors. In most cases, the overall increase in demand for the products causes a corresponding increase in the overall production. The net result is increased income.

New developments of products along with technological advances are known to deliver positive impacts on the overall economic growth. Increase in the overall demand from foreign markets tends to increase the overall export sales at the same time. In the given cases, the overall influx of income –in case large enough, tends to cause an increase in the overall economic growth rate.

Economic contraction serves to be the mirror image. Consumers are known to restrict the overall spending. Therefore, eventually demand falls and the overall production falls as well. In the worst case condition, the overall effects tend to snowball. Due to the fall in the overall production, jobs are lost. Demand is known to fall further. GDP for the given quarter is known to come at a negative value.