Determine the time period you want to calculate. The annualized GDP growth rate is a measure Annual inflation is usually a percentage of the overall increase in cost of living and overall increase in the CPI. The "GDP Deflator" however is simply the new, In this lesson, you'll discover the formulas economists use to calculate real GDP growth rates and draw conclusions about real economic growth. 23 Jan 2019 Where GDPt is the latest real GDP, GDP0 is the earlier GDP and t is the number of periods. The equation for compound average growth rate can
So references that say that the deflator is the nominal / real GDP, aren’t quite accurate. You need the nominal GDP (say, $100), and the GDP deflator (say, 4%). Once you have these two divide the nominal GDP by 1+deflator. In this case, real GDP would be $100/ (1+.04) = $96.15. The deflator differs from the CPI in a number of ways. The formula for GDP deflator is very simple and it can be derived by dividing the nominal GDP by the real GDP and then the result is multiplied by 100. Nominal GDP captures the valuation of all goods and services at current prices, while real GDP is the valuation of the same at constant prices without the effect of inflation.
The GDP deflator is a measure of the change in the annual domestic production due to change in price rates in the economy and hence it is a measure of the change in nominal GDP and real GDP during a particular year calculated by dividing the Nominal GDP with the real GDP and multiplying the resultant with 100. One way of overcoming this problem is to establish a base year for annual GDP calculations, then back inflation out of the nominal GDP numbers in later years by using a compensating inflation rate factor, the "GDP Deflator." The GDP Deflator equals nominal GDP divided by real GDP times 100. If nominal GDP equals $600 billion and real GDP equals $500 billion, then the GDP Deflator equals 120. The annual rate is equivalent to the growth rate over a year if GDP kept growing at the same quarterly rate for three more quarters (or the same average rate). Calculating the real GDP growth rate -- a worked example Let's work through an example, using the most recent GDP data. The GDP deflator in the base year is 100. If prices are rising -- and they usually are -- then the GDP deflator will be greater than 100 in subsequent years, revealing how much prices have risen from the base year. If the GDP deflator rises from 100 to 105 the following year, then prices rose by 5 percent.
The annual rate is equivalent to the growth rate over a year if GDP kept growing at the same quarterly rate for three more quarters (or the same average rate). Calculating the real GDP growth rate -- a worked example Let's work through an example, using the most recent GDP data. The GDP deflator in the base year is 100. If prices are rising -- and they usually are -- then the GDP deflator will be greater than 100 in subsequent years, revealing how much prices have risen from the base year. If the GDP deflator rises from 100 to 105 the following year, then prices rose by 5 percent. GDP Deflator in the United States increased to 112.19 Index Points in the second quarter of 2019 from 111.47 Index Points in the first quarter of 2019. GDP Deflator in the United States averaged 53.32 Index Points from 1950 until 2019, reaching an all time high of 112.19 Index Points in the second quarter It is sometimes also referred to as the GDP Price Deflator or the Implicit Price Deflator. It can be calculated as the ratio of nominal GDP to real GDP times 100 ( [nominal GDP/real GDP]*100). This formula shows changes in nominal GDP that cannot be attributed to changes in real GDP.
Here's the formula to calculate real GDP per capita (R) if you only know nominal GDP (N) and the deflator (D): (N / D) / C = real GDP per capita. The best way to calculate real GDP per capita for the United States is to use the real GDP estimates already published by the Bureau of Economic Analysis. Then just divide it by the population.