What is the 'Real Economic Growth Rate'?
The real economic growth rate measures economic growth in relation to gross domestic product (GDP) from one period to another and adjusted for inflation. Alternatively, it is expressed in real terms as opposed to nominal terms. The real economic growth rate is expressed as a percentage that shows the rate of change in a country's GDP, typically, from one year to the next. Another economic growth measure is gross national product (GNP), which is sometimes preferred if a nation's economy is substantially dependent on foreign earnings.
BREAKING DOWN 'Real Economic Growth Rate'
The real economic growth rate, also referred to as the growth rate of real GDP, is a more useful measure than the nominal GDP growth rate because it considers the effect of inflation on economic data. The real economic growth rate is a "constant dollar" figure and, therefore, provides a consistent measure that is not distorted by periods of extreme inflation or deflation.
Calculating the Real GDP Growth Rate
GDP is calculated as the sum of consumer spending, business spending, government spending and total exports minus total imports. To factor in inflation and arrive at the real GDP figure, the calculation is as follows:
Real GDP = GDP / (1 + Inflation since base year)
The base year is a designated year, updated periodically by the government, that is used as a comparison point for economic data such as the GDP.
Once real GDP is calculated, the real GDP growth rate is calculated as follows:
Real GDP growth rate = (most recent year's real GDP  the previous year's real GDP) / the previous year's real GDP
Using the Real Economic Growth Rate
A country's real economic growth rate is helpful to government policymakers when making fiscal policy decisions. These decisions might be applied to spur economic growth or control inflation. Real economic growth rate figures are commonly used for two purposes. First, the real economic growth rate figure is used to compare the current rate of economic growth with previous periods to ascertain the general trend of the rate of growth over time. Second, the real economic growth rate is helpful when comparing the growth rates of similar economies that have substantially different rates of inflation. A comparison of the nominal GDP growth rate for a country with only 1% inflation to the nominal GDP growth rate for a country with 10% inflation would be substantially misleading because nominal GDP is not adjusted for inflation.

GDP Price Deflator
The GDP price deflator is a system that converts output measured ... 
Inflationary Gap
An inflationary gap is a macroeconomic condition describing the ... 
Economic Growth Rate
An economic growth rate is a measure of economic development, ... 
Aggregate Hours
Aggregate hours refer to the total sum of hours worked by all ... 
Expenditure Method
The expenditure method is a method for determining GDP that totals ... 
Nominal Value
Nominal value is the stated value of an issued security, and ...

Insights
Nominal vs. Real GDP
GDP stands for gross domestic product and is the measure of the total economic output of the goods and services of a country. 
Insights
The Importance Of Inflation And GDP
Learn the underlying theories behind these concepts and what they can mean for your portfolio. 
Insights
Explaining The World Through Macroeconomic Analysis
From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone. 
Trading
Trading GDP Like A Currency Trader
Investors that understand and utilize the U.S. GDP report have a significant advantage over those that don't. 
Insights
The Taylor Rule: An Economic Model for Monetary Policy
Learn about the The Taylor Rule, an interest rate forecasting model that's helped central banks around the world adjust their rates to balance out inflation. 
Investing
Can Global Investors Profit From GDP Watching?
GDP growth is not necessarily a solid indicator of stock market returns in emerging markets. Find out what to watch instead. 
Investing
Interest Rates Explained: Nominal, Real, Effective
Interest rates are divided into subcategories. Smart investors look beyond the nominal or coupon rate of a bond or loan to see if it fits their objectives. 
Taxes
Countries With The Highest Taxes
If you thought your taxes as an American were high, think again. Here's a list of the top five countries with the highest tax revenues as a percentage of GDP.

How does the United States government measure economic growth?
Find out how the Bureau of Labor Statistics and the Bureau of Economic Analysis measure economic growth in the United States ... Read Answer >> 
What is the Difference Between Real and Nominal Interest Rates?
Learn about nominal interest rates and real interest rates and the difference between the two (hint: one of them takes into ... Read Answer >> 
What Are the Best Measurements of Economic Growth?
Learn how economists and statisticians track economic growth and why GDP might not be the best measurement of real economic ... Read Answer >> 
Which countries are most productive in terms of GDP?
Countries around the world constantly compete with one another to be the most innovative and productive. Read to see which ... Read Answer >> 
How do you calculate GDP with the Income Approach?
There are generally two ways to calculate GDP: the expenditures approach and the income approach. Find out the factors that ... Read Answer >>