If inflation is growing at 4 percent and nominal GDP is growing at 5 percent, what is the economic growth rate?
Question
If inflation is growing at 4 percent and nominal GDP is growing at 5 percent, what is the economic growth rate?
Solution
The economic growth rate, also known as the real GDP growth rate, can be calculated by subtracting the inflation rate from the nominal GDP growth rate.
Here are the steps to calculate it:
Step 1: Identify the nominal GDP growth rate. In this case, it is 5 percent.
Step 2: Identify the inflation rate. In this case, it is 4 percent.
Step 3: Subtract the inflation rate from the nominal GDP growth rate.
So, 5 percent (nominal GDP growth rate) - 4 percent (inflation rate) = 1 percent.
Therefore, the economic growth rate is 1 percent.
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