The percentage change in real GDP from one period to the next is called which measure?

• A. Inflation
• B. Real GDP
• C. GDP growth rate
• D. Price deflator

Answer: (C)

The main concept being tested is how we measure changes in an economy’s actual output over time. The percentage change in real GDP from one period to the next is the GDP growth rate, because it shows how much the economy has expanded or contracted after stripping out price changes.

Real GDP adjusts for inflation, so the growth rate reflects the true increase in the quantity of goods and services produced. It’s calculated as the change in real GDP from the previous period to the current period, divided by the previous period’s real GDP, times 100. A positive growth rate means higher real output than before; a negative rate indicates a decline.

Inflation is about the general rise in prices, not the quantity of goods and services produced. Real GDP is the level of output in constant prices, which tells you how much output there is, but not how that output is changing over time. The price deflator is a price index used to convert nominal GDP to real GDP by removing price effects; it tracks price changes, not the period-to-period change in real output.

So, the correct measure described is the GDP growth rate.