A growth indicator measures how output changes between two periods. Total output tells you the size of the change. Output per person tells you what it means on average once population is considered.
This lesson belongs to economic indicators. If output is given in money terms for different years, read comparing nominal and real changes first.
What does a growth rate measure?
It measures the percentage change in output over a period, based on the earlier period’s output. The formula is (later − earlier) ÷ earlier × 100.
Begin every interpretation with a sentence that names what was measured: “Total output rose by …” or “Output per person rose by …”. Then add what it suggests and what it leaves out.
Worked example: total and per person
A fictional economy produces RM400 billion of output in Year 1 with a population of 20 million. In Year 2 it produces RM420 billion with a population of 21 million. Both figures are already adjusted for price changes.
Growth of total output. (420 − 400) ÷ 400 × 100 = 5%.
Population growth. (21 − 20) ÷ 20 × 100 = 5%.
Output per person, Year 1. RM400 billion ÷ 20 million = RM20 000.
Output per person, Year 2. RM420 billion ÷ 21 million = RM20 000.
Total output grew 5%, yet the output per person did not change at all, because the population grew at the same rate. The average person was not producing more.
| Measure | Year 1 | Year 2 | Change |
|---|---|---|---|
| Total output | RM400 billion | RM420 billion | +5% |
| Population | 20 million | 21 million | +5% |
| Output per person | RM20 000 | RM20 000 | 0% |
The mistake that costs marks
The common slip is to conclude “growth of 5% means each person is 5% better off”. The 5% describes the total. Nothing in the figures shows how output is shared, and the per person figure shows no change.
A second slip is to say the economy “did badly” from the per person figure alone. Output per person is an average. It cannot show who gained or lost, so the fair statement is what the figure says and what it cannot say.
A safe frame is: “Total output rose by 5%, but output per person was unchanged because population also rose by 5%. The figures do not show how output was shared.”
Check yourself
A fictional economy’s real output is RM500 billion in Year 1 and RM525 billion in Year 2. Population is 25 million, then 25.5 million. Find the growth of total output, the output per person in each year and the percentage change in output per person.
Answer
Total growth: (525 − 500) ÷ 500 × 100 = 5%.
Output per person, Year 1: 500 billion ÷ 25 million = RM20 000.
Output per person, Year 2: 525 billion ÷ 25.5 million = RM20 588.24, about RM20 588.
Change: (20 588.24 − 20 000) ÷ 20 000 × 100 = 2.94%, about 2.9%.
Output per person grew more slowly than total output because the population grew by 2%, which uses up part of the rise.
What to study next
Continue with interpreting inflation data if the price index steps are not yet secure, or go to identifying the population and period before comparing two indicator values. Then use the indicators practice set.
If you want a teacher to check how you word an interpretation, see online one-to-one Economics tuition.