Calculating economic growth

The formula for calculating % change in real GDP is the following

% change in real GDP = final value of real GDP – initial value of real GDP (x100)

÷ initial value of GDP

… For example

• If an economy had real GDP of…• $75.3billion in 2010 • …and $81.7billion in 2011• How much did Real GDP grow?

81.7 – 75.3 (x100)÷

73.3 = 8.73%

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Question 4a.)

• If an economy had real GDP of…• $1579 in 2007 • $ 1611 in 2008• $1597 in 2009a.) How much did the economy 2007 -2008 grow?

1611 – 1579 (x100)÷ 1579 = 2.03% Growth

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Question 4b.)

• If an economy had real GDP of…• $1579 in 2007 • $ 1611 in 2008• $1597 in 2009b.) How much did the economy 2008 -2009 grow?

1597-1611 (x100)÷ 1611 = -0.87% Growth

4C.) When did the economy experience negative growth?

• The economy experienced negative growth of 0.87% between 2008 and 2009

• This means to say that the economy contracted by approximately 1%

• Recession!!!

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Question 5 – How is it possible that country can have positive real GDP growth and yes have negative real GDP per capita?

• it will all depend on how fast the population is growing

• If real GDP grows faster than population then the per capita GDP level will increase too.

• However if population increases faster than real GDP then the per capita GDP on average decreases

If we know the % change in real GDP and the percentage change in the population, we can find the % change in Real GDP per

capital simply

% change in real GDP per capita = % change in real GDP – % change in population

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Question 6Suppose that an economy’s real GDP grew by 2.2% in 2007, and it’s population grew by 1.5% during the same year. By how much did its real GDP per capita grow?

2.2% - 1.5% = 0.7%