A country can make a number of calculations when trying to measure its economic progress.The GDP is the main measure of economic activity in most countries.It is the measure of a nation's goods and services over a period of timeGoods and services that are measured are those that the country produces.GDP is expressed in terms of the local economy.It is important to know how to calculate the growth rate of nominal GDP since it is widely used.
Step 1: Understand that nominal and real GDP are different things.
Nominal GDP is the GDP of a country.Real GDP is adjusted for inflation or deflation.Real GDP is used instead of nominal GDP when determining the growth rate of an economy.Nominal GDP is useless when comparing output for different periods because it is based on current prices.If you know that a country's annual nominal GDP was $1 billion in 1940 but $200 billion now, you don't know much about the relative output between those two periods.To see how they compare, you have to convert the figures to GDP.
Step 2: Combine that period's consumer spending and consumption.
Adding together the country's expenditures can be used to calculateNominal GDP.Consumption is the first of four categories of spending.Consumers spend this amount on durable goods, non-durable goods and services.Personal items include food, clothing, rent, and services like health care.The most stable part of GDP is consumption.Imported goods are not included as they are part of net exports.
Step 3: All investments.
Investment is the second part of GDP.This is the total amount of money spent on capital equipment, increases in inventory, and structures.Business machinery, new homes, and the construction of new factories are some of the items that would fall into this category.Since they do not add to the actual output, stocks and bonds are not included.
Step 4: All government spending needs to be added together.
All levels of government spend on goods and services.Military purchases, teacher pensions and government salaries are examples.Welfare or unemployment payments areducted from this amount.
Step 5: The net exports should be determined.
The sum of all imports and exports is calculated.Net exports are made up of the difference between domestic and foreign goods consumed.Adding to the amount of GDP is when exports exceed imports.The four categories are added together to arrive at nominal GDP.
Step 6: The GDP should be calculated for the prior period.
If you want to calculate your nominal GDP growth rate, you need figures for more than one time period.If you have reliable data for each period, these periods can be consecutive or removed.Make sure that your nominal GDPs are the same for the nation and the time period.
Step 7: You need to set up the equation.
Two consecutive periods is the simplest way to calculate nominal GDP growth.The formula is the one for percent change.It is referred to as NGDP Growth.The later period and the earlier are represented in the formula.To calculate nominal GDP growth, enter your own data.If NGDP were $200 billion one period and $210 the next, you would have an equation.
Step 8: Simple GDP growth was calculated.
To solve the equation, simply perform the subtraction and division.To arrive at your growth rate in percentage form, you need to add 100 to your answer.The equation would first solve to NGDP Growth of $10B$200B.NGDP Growth is given by dividing.If you add 100, you get NGDP Growth of 5%.Between the two periods, your GDP growth rate is 5 percent.
Step 9: Cumulative growth is found over a longer time period.
Between non-consecutive periods, cumulative growth is the total growth in nominal GDP.It's calculated the same way as consecutive growth, by substituting NGDPxdisplaystyleNGDP_X for a later period.Cumulative growth can be found using the method described for calculating simple NGDP growth.A record of nominal GDP growth shows a value of $200 billion one year and $280 billion five years later.The method used to calculate the cumulative growth is 40 percent.
Step 10: Cumulative growth to average growth.
You can see how much a figure grew during a period.You might think that the average growth would be the cumulative growth divided by the number of periods, but this is not the case.A different formula is used to calculate average growth.The formula is specific to calculating NGDP.Continuing with the cumulative growth example, we would have NGDP Growth.This would make it easier to understand NGDP Growth.If the power of 1 is divided by 5 or 0.2, the exponent can be solved.The calculator can be used to enter "1.40.2" into a search engine.When rounded to four decimal places, the result is 1.0696.This leaves the equation as NGDP Growth.The result is NGDP Growth.The average growth rate over the time period is 6.96 percent.
Step 11: Take the total output of a nation and add it up.
The primary function of nominal GDP is to show the total output of a country over a period of time.Nominal GDP growth can be used to find the growth or decrease in output between years.Growth may not be a reliable measure of actual output between years, but comparing market values can be useful for other purposes.
Step 12: Determine inflation.
Nominal GDP growth is used to measure inflation.The same set of years are used to calculate real GDP growth.The two growth rates are compared.The country's currency is experiencing inflation if nominal GDP is rising faster than real GDP.The country is experiencing deflation if nominal GDP is growing at a slower rate.
Step 13: To convert to actual GDP.
Adding inflation or deflation to nominal GDP is called real GDP.The GDP deflator is a measure of relative prices and is used to arrive at real GDP.The GDP deflator is made up of price indexes for the two periods being compared.The price index of two years is 105 for a base year and 120 for the current.To convert nominal GDP to real GDP, the GDP deflator is 105 120, or 0.875.If the nominal GDP was $100 billion, the real GDP would be $87.5 billion.