Kōrero: National income and GDP

Whārangi 3. Growth in GDP

Ngā whakaahua

Tracking economic growth

Economic analysis is not carried out simply on current levels of the gross domestic product (GDP), but its change over time – to measure the real growth of the economy. Changes in the quantities of goods and services produced and available for consumption, investment or export directly impact on New Zealanders’ welfare.

Volume measures of GDP

In periods of high inflation, changes in current-price GDP alone do not show real quantity changes.

To measure the growth of the economy, analysts distinguish between that part of a change in current price GDP due to changes in quantities produced, and that due to price changes.

Volume measures of GDP are calculated by expressing the different components of production in the constant prices of a chosen base year, and then summing them to get total GDP. Such series are referred to as being ‘in constant prices’, or, more correctly, as being expressed in volume terms. In New Zealand both GDP(P) (GDP for production) and GDP(E) (GDP for expenditure) in volume terms are calculated in this way, both annually and quarterly.

By dividing the current price GDP(E) series by its volume equivalent, the result is an indicator of the change in prices – the GDP implicit price deflator. This is a key economic indicator as it provides a broad measure of price change across the whole economy.

For example during the period of high inflation in New Zealand in the 1970s the annual growth rate in the GDP was over 14%, but of this over 12% was the result of price inflation. The actual annual growth rate in volume terms was about 2.2%.

GDP and population change

The volume measure of GDP is also affected by population growth. If the population increases rapidly, the quantity of goods and services produced should also increase. Growth in GDP per inhabitant (GDP per capita) over the medium to long term is a better indicator of the New Zealand population’s economic well-being.

Me pēnei te tohu i te whārangi:

Jeff Cope, 'National income and GDP - Growth in GDP', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/mi/national-income-and-gdp/page-3 (accessed 12 November 2019)

Story by Jeff Cope, published 11 Mar 2010