GDP Growth Rate
The percentage change in real output between two periods.
Formula
Variables
Example
($640B − $610B)/$610B ≈ 4.9%
How it works
This formula measures how much an economy’s output has increased or decreased relative to its earlier level. It works by finding the change in GDP, dividing by the starting GDP to make the change comparable across different-sized economies, and then multiplying by 100 to convert the result into a percentage. Using the prior period as the base shows the growth rate as a share of what the economy was producing before.
When to use it
Use this when comparing GDP from one quarter or year to another, especially in reports on economic performance or business cycles. It is also useful for comparing growth across countries or time periods with different starting GDP levels.
Worked example, step by step
GDP_0 = $2.40 trillion GDP_1 = $2.52 trillion Step 1: Find the change in GDP GDP_1 - GDP_0 = 2.52 - 2.40 = 0.12 trillion Step 2: Divide by the prior GDP 0.12 / 2.40 = 0.05 Step 3: Convert to a percentage 0.05 × 100% = 5% Final answer: GDP growth rate = 5%
Common mistakes to avoid
- Using nominal GDP when the question asks for real GDP growth
- Dividing by the current GDP instead of the prior GDP
- Forgetting to multiply by 100% at the end
Did You Know?
Two consecutive quarters of negative GDP growth is the common rule-of-thumb definition of a recession.
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