## What is the growth rate?

**Growth rate** represents the **percentage **change in a particular **variable **over a while. We can look at them from an **investor’s **perspective. For investors, they represent a complex **annual **growth rate of the company, **earnings**, **dividends**, and even some macro concepts, which are, in most cases, **GDP **and **sales**. We can also use them to predict the future picture of our revenues and expenses.

We can calculate their value by the division of closing and opening values of a period, relevant to the period covered by the analysis of **economic rates**. The instalment that we most commonly use is the **Compound annual rate **and using it allows one to invest a company in the presentation of said rate.

## How to calculate the economic growth rate?

In most situations, the economic** growth rate measures** the change in a country’s GDP (GDP). Gross national product (GNP) may be employed in countries whose economies are largely reliant on **foreign profits**. The latter includes net revenue from overseas **investments**.

The “rate of economic growth” refers to the geometric yearly GDP growth rate between the first and last years of a time period. This growth rate measures the **average **level of GDP during the period and ignores any volatility in GDP around this trend.

The rate of economic growth is computed using GDP statistics reported by nations’ statistical agencies. The rate of increase of GDP per capita is computed using GDP and population statistics for the start and end periods included in the analyst’s analysis.

Economic \; Growth = \frac { GDP_2 - GDP_1} {GDP_1}

## Calculating growth rates

Depending on your scenario, you may use one of three ways to determine the growth rate:

**Method of straight-line % change.**Make a note of the formula. Determine the absolute change. Subtract the absolute change from the original value. Convert the value to a percentage.**Method of the midpoint**. Make a note of the formula. Determine the absolute change. Determine the average value. Subtract the absolute change from the average value. Convert the value to a percentage.**Calculating the average rate of increase throughout time**. Make a note of the formula. Calculate the difference between the current and previous values. Divide the difference by the 1/Nth power. Subtract one and multiply by 100 to get a percentage.

## The growth rate of real GDP

The **annual rate** of increase in real GDP per capita. The annual growth rate of real GDP per capita is computed as the percentage change in real GDP per capita between two **consecutive **years. Determination of real GDP per capita is by dividing GDP at constant prices by a country’s or region’s **population**. Measurement of real GDP statistics is in constant **US dollars** to ease the computation of national growth rates and the aggregation of country data.

## What is economic growth?

Economic growth means an increase in **production**, **production capacity**, and all other components of an economy. The most common way to express economic growth is GDP (gross domestic product) or a more actual GDP per capita.

GDP shows the overall value production of all final **goods and services** in one country in a year. It follows that GDP shows the ability of a society to meet its needs for the goods that are on the market as the subject of market exchange.

GDP per capita is the most critical indicator of **economic growth**, measurement of economic growth is by the growth rate in such a way that gross domestic product is put concerning the number population of that country, and we express it as GDP per capita or GDP per capita.

## Level versus growth rate

The level of GDP is an important indicator of a country’s economic **strength**. Equally important is the level of

*REAL GDP per capita = real GDP / population *

This is an indicator of the average standard of living countries. In estimating the results of the economy, economists rely on the REAL GDP RATE. Expansion is a period of positive growth. A recession is a period of negative growth. We can calculate it through the formula:

*((Yt-Yt-1) / Yt-1) x100 =%*

## Inflation and growth rate

**Inflation **is an increase in the general level of prices over a period covering the whole economy. In a market economy, the prices of goods and services change. Some **fees **are rising, and others are falling. We talk about inflation when there is a general increase in the **prices **of goods and services and not an increase in the prices of individual products. This means that we can buy less for one dollar, that is, that one dollar is worth less than before. Inflation measurement takes into account all goods and services that households spend on, including:

- products for everyday consumption
- durable goods
- services

## The growth rate of real GDP

The annual rate of increase in real GDP per capita. The annual growth rate of real GDP per capita is computed as the percentage change in real GDP per capita between two consecutive years. We can determine real GDP per capita by dividing GDP at constant prices by a country’s or region’s population. Real GDP statistics measurement is in constant US dollars to ease the computation of national growth rates and the aggregation of country data.

## Dividend growth and securities valuation

The dividend growth rate is the annualized percentage growth rate of a certain stock’s dividend over time. Many established firms strive to raise dividends given to **shareholders** on a regular basis. We also know that the dividend growth rate is an important parameter for dividend discount models that we use to value stocks.

**Securities valuation** is a vast issue since securities span from stocks and bonds to other forms of derivative contracts such as options. These financial instruments may need value for financial **reporting**, **commercial**, or **regulatory **objectives in terms of **accounting **and valuation practice.

## FAQ

**How to calculate the growth rate of real GDP?**

The percentage change in real GDP per capita between two consecutive years is used to determine real GDP per capita growth rate. Real GDP per capita is determined by dividing GDP at constant prices by a country’s or region’s population.

**How to calculate the nominal GDP growth rate?**

When GDP is not adjusted for price fluctuations, it is referred to as nominal GDP. For example, if real GDP in Year 1 is $1,000 and real GDP in Year 2 is $1,028, the output growth rate from Year 1 to Year 2 is 2.8 percent; (1,028-1,000)/1,000 =. 028, which we multiply by 100 to express as a percentage

**Calculate GDP growth rate formula**

Use the following method to calculate the yearly growth rate of real GDP per capita in year t+1: [(G(t+1) – G(t))/G(t)] x 100, where G(t+1) is real GDP per capita in 2015 US dollars in year t+1 and G(t) is real GDP per capita in 2015 US dollars in year t.