If real GDP in year 1 is $487 billion and it is $498 billion in year 2, what is the economic growth rate equal to?
The quick answer is that there has been 2.25% economic growth from year one to year 2.
To answer this, what you need to do is be able to figure out the percent change that happens between these two numbers.
The way to figure out percent change is to take the difference between the two years' figures and divide that difference by the value of the first year.
In this case, that means you subtract year 1 from year 2 and get $11 billion. They you divide that by $487 and get the figure of 2.25% that I mentioned above.
The economic growth rate is calculated as the ratio of the increase of GDP of the year 2 over the year 1 and is expressed as the percentage.
In theis case, the increase of GDP in the 2nd year over the 1st year = $(498 - 487) billion = $11billion.
Therefore, the growth rate in terms of the percentage increase of GDP over the first year = ($11billion/$497 billion)100 %= 1100/487 % = 2.2587%
One of the measures used for measuring economic growth is the percentage increase in annual GDP. The GDP itself may be calculated on the basis of current price, real GDP, purchase power parity, or any other similar variation.
The increase or growth in GDP in any year is calculated as percentage of the total GDP in the previous year. Thus:
Percentage growth in GDP
= 100*(Current GDP - Last year's GDP)/(Last year's GDP)
It is give:
GDP in Year 1 = $487 billion
GDP in Year 2 = $498 billion
GDP growth rate in year 2 = 100*(498 - 487)/487 = 100*11/487 = 2.2587% = 2.6% (approximately)
Thus base on GDP we can say that economic growth rate in second year is 2.6 percent.