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Word Count: 369
Economists use many different methods to measure how fast the economy is growing The most common way to measure the economy is real gross domestic product or real GDP GDP is the total value of everything--goods and services--produced in our economy The word real means that the total has been adjusted to remove the effects of inflation The other way to measure economic growth is GDP per capita There are at least three different ways to measure growth of real GDP It is important to know which is being used and to understand the differences among them The three most common ways to measure real GDP are - Quarterly growth at an annual rate - The four-quarter or year-over-year growth rate - The annual average growth rate Quarterly growth at an annual rate shows the change in real GDP from one quarter to the next compounded into an annual rate This process is often called annualizing For example in the second quarter of 2001 the economy grew 01 per cent from the first quarter If the economy had grown at that pace for an entire year the annual growth would be 04 per cent So the quarterly growth at an annual rate was reported at 04 per centThis measure is often used by the media It does a good job of showing recent economic developments The four-quarter or year-over-year growth rate compares the level of GDP in one quarter to the level of GDP in the same quarter of the previous year For example in the second quarter of 2001 GDP was 21 per cent above that in the second quarter of 2000 This measure is popular among businesses who generally present their own quarterly earnings results on that basis to avoid seasonal variations The year-over-year growth rate tends to be somewhat less volatile than quarterly growth at an annual rate That is because the effect of any special factors does not get compounded
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