Real growth and inflation are associated with the Gross Domestic Product (GDP). GDP is the total market worth of a nation’s products and services during a specific period (Feldstein, 2017). When Comparing periods of GDP growth, real growth takes inflation or deflation into account, while the inflationary growth rate uses actual market values to measure GDP growth. The purpose of this paper is to show the significant difference between real growth and inflationary growth.
The core difference between real and inflation growth is based on the production volume and price changes. Inflation growth focuses on the volume and prices of the goods and services produced in a given period (Ahmmed et al., 2021). When we look into real growth as a measure of economic growth, the focus is on the volume of what was produced during a specific period (Feldstein, 2017). Real growth is preferred because it only considers the volume produced, and this accounts for the inflation of price values in the market. With inflationary growth, the inflation and deflation of the currency value in the market are not considered, making inflationary growth an unrealistic measure of economic growth.
In conclusion, real growth considers volume to determine GDP growth, while inflation growth considers volume and market prices. Real growth is a more useful measure of economic growth because it considers the inflation or deflation effect on financial data. Inflationary growth is a good measure when the market price growth increases at the same rate as the increase in production volume growth. In an ideal economic situation, the production volume cannot grow at the same rate as the price appreciation, thus rendering inflationary growth an unfavorable measure of economic growth.
References
Ahmmed, M., Uddin, M. N., Rafiq, M. R. I., & Uddin, M. J. (2020). Inflation and economic growth link–multi-country scenario. International Journal of Economics and Financial Issues, 10(4), 47. Web.
Feldstein, M. (2017). Underestimating the real growth of GDP, personal income, and productivity. Journal of Economic Perspectives, 31(2), 145-64. Web.