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What Are the Different Methods of Finance Growth Measurement?

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  • Written By: Helen Akers
  • Edited By: Jessica Seminara
  • Last Modified Date: 04 December 2016
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Finance growth is measured according to changes in the value of the economy's manufactured products and services, the inflation rate, changes in the amount of circulating money, and interest rates. Gross domestic product (GDP), which incorporates several macroeconomic components and financial markets, is measured in terms of nominal and real GDP. The percentage change in the amount of manufactured products and services from one year to the next represents real GDP, which is synonymous with the macroeconomic growth rate.

The gross domestic product is the primary method of measuring a nation's finance growth. It takes into account consumer spending, investments made by corporations and government spending. GDP also incorporates a country's net exports, which is calculated by subtracting total imports from total exports. The end result is the monetary market value of a country's entire economy.

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Growth in GDP is measured by calculating any percentage increases or decreases in the amount of manufactured products and services from the benchmark year to the current year. For example, if a nation's government wants to determine the amount of finance growth that occurred in ten years, they would first subtract the most recent year's amount from the amount that was reported ten years ago. This figure would then be divided by the most recent year's total amount to determine the percentage or growth rate. The measurement reflects whether the value of a country's economy is experiencing growth and at what rate it is occurring, assuming that average prices remain the same.

A country's inflation rate is directly linked to changes in the economy's money supply. It is equivalent to the money growth rate added to the change in the amount subtracted from the output. Low inflation rates can indicate that the market value of an economy's manufactured products and services is increasing substantially. High inflation indicates that the economy's money supply is increasing substantially as a result of a higher market value of the nation's produced goods and services.

Interest rates are used to measure and control finance growth. In economic recessions, the government's central reserve bank has the ability to lower interest rates in order to encourage bank lending, consumer spending and an increase in the economy's money supply. Lower interest rates tend to stimulate finance growth, but result in lower short-term investment returns for stocks, bonds and savings accounts. National reserve interest rates are raised in order to curb inflation and finance growth by encouraging a decrease in the average price level. Raising interest rates also encourages a decrease in the amount of circulating money and discourages consumer borrowing.

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