What is an 'Economic Growth Rate'

An economic growth rate is a measure of economic growth from one period to another in percentage terms. This measure does not adjust for inflation; it is expressed in nominal terms. In practice, it is a measure of the rate of change that a nation's gross domestic product (GDP) goes through from one year to another, but gross national product (GNP) can also be used if a nation's economy depends heavily on foreign earnings.

BREAKING DOWN 'Economic Growth Rate'

Economic Growth Rate

The economic growth rate provides insight into the general direction and magnitude of growth for the overall economy. In the United States, for example, the long-term economic growth rate is around 2 to 5%. Lower economic growth rates are seen in most highly industrialized countries. Fast-growing economies, on the other hand, see rates as high as 10% although this rate of growth is not likely to be sustainable over the long term.

The economic growth rate demonstrates the change in a nation’s or larger economy's income over a specified period of time. Most commonly, this is examined on a quarterly basis, but economic growth rates can be observed across larger spans of time, such as year over year (YOY) or decade over decade.

While economic growth is most often assumed to refer to positive movement, economic changes can be positive or negative. If an economy experiences two consecutive quarters with falling growth rates, it can be said that the associated economy is falling into a recession. If the economy begins to shrink, the percentage rate can be expressed as a negative to demonstrate the income lost over the time period being examined.

Causes of Economic Growth

Economic growth can be spurred by a variety of factors or occurrences. Most commonly, increases in aggregate demand encourage a corresponding increase in overall output that brings in a new source of income. Technological advancements and new product developments can exert positive influences on economic growth. Increases in demand, or availability, in foreign markets that result in higher exports can also have positive influences. This can be due to the spread of previously unavailable products into a new market or increases in the particular market’s economic standing that raise the discretionary income of its citizens. As demand rises, associated sales levels also rise. This influx of income causes an increase in the economic growth rate.

Aggregate Demand

In economics, aggregate demand includes the potential customers who are able and willing to buy a product. Aggregate demand increases can occur nationally or internationally. This change can spur an increase in production to create higher levels of supply, providing more product to reach potential customers. This increase in production and associated sales can lead to economic growth.

  1. Economic Growth

    An increase in the capacity of an economy to produce goods and ...
  2. Real Economic Growth Rate

    A measure of economic growth from one period to another expressed ...
  3. Negative Growth

    Negative growth is a contraction in a country's economy as evidenced ...
  4. Development Economics

    Development economics is a branch of economic study that focuses ...
  5. Economic Indicator

    An economic indicator is a piece of economic data, usually of ...
  6. Deficit Spending Unit

    A economic term used to describe how an economy or economic unit ...
Related Articles
  1. Insights

    Deadly Flaws in Major Market Indicators

    These indicators give investors and experts some data to work with, but they're far from perfect.
  2. Trading

    Economic Factors That Affect The Forex Market

    Knowing the factors and indicators to watch will help you keep pace in the competitive and fast-moving world of forex.
  3. Insights

    Is the Current Pace of U.S. Growth Sustainable?

    Although the crystal ball is certainly clouded with conflicting data, strong Q4 data would go a long way in confirming that the current U.S. economic growth rate is sustainable.
  4. Investing

    Impact of the Chinese Economy on the U.S. Economy

    The economic growth of China has been decreasing since 2010. What impact does this have on the US and the world economy?
  5. Insights

    Where To Find Economic Indicator Data For Brazil

    Once an emerging economic powerhouse, the Brazilian economy is now struggling. Here is the list of primary economic indicators and sources to get Brazil's economic indicators.
  6. Trading

    The Fundamentals Of Forex Fundamentals

    Charting is not the only way to analyze the foreign-exchange market. Learn how to apply fundamental analysis to the economic indicators.
  7. Insights

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  1. What impact does economics have on government policy?

    Learn about the impact of economic conditions on government policy and understand how governments engineer economic conditions ... Read Answer >>
  2. What are key economic growth rates that can be used to determine the economic health ...

    Discover the indicators that correlate with real economic health, and learn why many traditional metrics do not function ... Read Answer >>
  3. What's the difference between regular supply and demand and aggregate supply and ...

    Understand how businesses use supply and demand and aggregate supply and demand to forecast economic activity. Learn about ... Read Answer >>
  4. What economic indicators are most used when forecasting an exchange rate?

    Discover what economic indicators are most widely used to forecast a country’s exchange rate and how various factors influence ... Read Answer >>
  5. What is the relationship between human capital and economic growth?

    Learn what human capital and economic growth are, how human capital is related to economic growth and see examples of the ... Read Answer >>
  6. Is there a difference between financial ratio analysis and accounting ratio analysis?

    Discover the economic factors that most influence corporate bond yields. Corporate bond yields reflect the market's assessment ... Read Answer >>
Hot Definitions
  1. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  3. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  4. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  5. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  6. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
Trading Center