Question

Economic growth is defined as:

	a.	the percent change in per capita income, or GDP
	b.	changes in technology
	c.	the difference between the nominal and real GDP
	d.	the percent change in prices, or GDP
	e.	the decline in the unemployment rate

Assume that both Japan’s and the United States’ average annual per capita GDP growth rates are 2 percent per year, and both countries began with an initial per capita GDP of $1,000. However, the United States has been growing since 1910 and Japan only since 1960. In 2010, the United States would have been ________ than Japan.

	a.	0.269 times poorer
	b.	99 times richer
	c.	4,555 times richer
	d.	0.37 times poorer
	e.	2.69 times richer

Which of the following is/are the benefit(s) of economic growth?

	a.	increases in life expectancy
	b.	reductions in infant mortality
	c.	higher incomes
	d.	an expansion in the range of goods and services available
	e.	All of these answers are correct.

Answer 1

1. a. the percent change in per capita income, or GDP
(Economic growth is the percentage rate of change in per capital income or real GDP)

2. e. 2.69 times richer
(We use the compound interest formula to find per capita GDP in 2010 for the two countries.
A = P[1 + (r/n)]^(nt)
where P = $1000 for both countries (Principal amount); r = 2% = 0.02 (rate of interest); n = 1 (number of times compounding is done every year); t = 100 for US (number of years) and 50 for Japan.
US: A = 1000[1 + (0.02/1)]^(1*100) = 1000[(1.02)^100] = 1000*(7.244646) = 7244.65
Japan: A = 1000[1 + (0.02/1)]^(1*50) = 1000[(1.02)^50] = 1000*(2.691588) = 2691.59
7244.65/2691.59 = 2.69 times richer)

3. e. All of these answers are correct.
(With economic growth all the options given are achieved)