Question

Consider the following table of long run trend growth rates of nominal GDP and population, along...

  1. Consider the following table of long run trend growth rates of nominal GDP and population, along with the long run average inflation rate, for four fictional countries:

Country________g(NGDP)____Inflation_Rate______g(POPULATION)__

Westeros                   18%                    10%                          5%

Pentos                          7%                     1%                           2%

Lys                               9%                     5%                           4%

Qarth                         15%                     6%                           3%

(a) Suppose these countries currently have identical living standards. Assuming the trends shown above continue indefinitely, which country will eventually have the highest living standards, and which will have the lowest?

(b) How many years will it take living standards to double in Qarth?

(c) How many years will it take for the price level to double in Pentos?

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