Question

How much does real GDP per capita need to increase in South Korea in 2011 to achieve a growth rate consistent with its 60 year average (1950-2010)? Round your answer to the nearest dollar

South Korea Real Per Capita GDP

1950 $1293

2010 $32,855

Answer 1

Given that, for South Korea,

Real per capita GDP in 1950 = $1,293

Real per capita GDP in 2010 = $32,855

Let the 60-year average growth rate of real GDP per capita be 'i'

Real per capita GDP after 60 years(from 1950) at a growth rate of 'i%' = $1,293 (1+i)⁶⁰

Therefore, $1,293(1+i)⁶⁰ = $32,855

=> (1+i)⁶⁰ = $32,855/$1,293

=> [(1+i)⁶⁰]^1/60 = ($32,855/$1,293)^1/60

=> 1+i = 1.0554

=> i = 1.0554 - 1

=> i = 0.554 = 5.54%

60-year average rate of growth of real GDP per capita = 5.54%

If the growth rate is consistent with the 60-year average in 2011, then the increase in GDP in 2011 = i x $32,855 = 5.54% x $32,855 = $1,820.17 = $1820 (Rounded off to nearest dollar)

Ans: $1,820