What is GDP Growth Rate and Why Should You Care?
GDP growth rate measures how much the gross domestic product has increased or decreased over a specific period. When positive, it means the economy is growing, which typically means more jobs and better standards of living. However, rapid growth can sometimes bring inflation.
Understanding GDP growth rate helps you anticipate economic conditions that affect job opportunities, investments, and public services.
How to Calculate GDP Growth Rate
The formula is:
[\text{GDP Growth Rate} = \frac{\text{GDP}{current} - \text{GDP}{previous}}{\text{GDP}_{previous}} \times 100]
Where:
- GDP_current is the gross domestic product of the current period
- GDP_previous is the gross domestic product of the previous period
- The result is expressed as a percentage
Calculation Example
Given:
- Previous Year GDP: $1,500,000
- Current Year GDP: $1,575,000
Step 1: Calculate the difference:
$$1575000 - 1500000 = 75000$$
Step 2: Divide by previous GDP:
[\frac{75,000}{1,500,000} = 0.05]
Step 3: Convert to percentage:
[0.05 \times 100 = 5%]
The GDP growth rate is 5%.
Summary Table
| Period | GDP Value ($) |
|---|---|
| Previous Year | 1,500,000 |
| Current Year | 1,575,000 |
| Growth Rate | 5% |
Why This Matters
GDP growth rate is a key economic indicator that influences:
- Central bank interest rate decisions
- Government fiscal policy
- Business investment planning
- Employment market trends
- Stock market performance