Growth Rates

Growth rates are frequently encountered in real world economics. A growth rate is simply the percentage

change in some quantity. It could be your income. It could be a business’s sales. It could be a nation’s GDP. The

formula for computing a growth rate is straightforward:

Suppose your job pays $10 per hour. Your boss, however, is so impressed with your work that he gives you a $2

per hour raise. The percentage change (or growth rate) in your pay is $2/$10 = 0.20 or 20%.

To compute the growth rate for data over an extended period of time, for example, the average annual growth

in GDP over a decade or more, the denominator is commonly defined a little differently. In the previous

example, we defined the quantity as the initial quantity—or the quantity when we started. This is fine for a one-

time calculation, but when we compute the growth over and over, it makes more sense to define the quantity as
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