Question

Suppose an economy’s real GDP is $30,000 in year 1 and $31,600 in year 2. What is the growth rate of its real GDP? Assume that population was 100 in year 1 and 102 in year 2. What is the growth rate of GDP per capita? (Show ALL of your calculations!)

When and where did modern economic growth first happen? What are the major institutional factors that form the foundation for modern economic growth?

Answer 1

Growth rate = ( V ending – V beginning) / V beginning

a) Rate of growth of real GDP from year 1 to year 2= (31,600 - 30,000)/ 30,000= 5.33%
Hence, economy has grown at the rate of 5.33% over time
b) Real GDP per capita is used to measure the standard of living over time as it measures the total economic output of a country divided by its population
thus Real GDP per capita = Real GDP / population

Real GDP per capita for year 1 = 30,000 / 100 = 300
Real GDP per capita for year 2 = 31,600/ 102 = 309.80

Rate of growth of real GDP per capita from year 1 to year 2= (309.80 - 300)/ 300= 3.27%
Thus in the year 2 standard of living has increased.