Question

What will happen to the annual rate of growth of per capita real GDP if the annual rate of population growth increases and the annual rate of growth of real GDP goes down?

A.

The effect will depend upon whether the rate of population growth is greater than or less than the rate of growth of real GDP.

B.

It will increase since the annual rate of growth of real GDP does not influence the growth rate of per capita real GDP.

C.

It will increase since an increase in population means an increase in labor that translates into an increase in real GDP.

D.

It will decrease since an increase in the growth rate of population and a decrease in the growth rate of real GDP both work to decrease the growth of per capita real GDP.

Answer #1

Answer is “The effect will depend upon whether the rate of population growth is greater than or less than the rate of growth of real GDP”

Per capita real GDP = Population / Real GDP

If denominator (real GDP) is larger than Numerator (Population) then per capita Real GDP will increase. But if population is increasing than the rate of growth of real GDP , the still the per capita real GDP still increase. For example in Year 1 the population growth was 1% and second year the population growth was 1.5%. At the same time real GDP growth was 5% and in Year 2 real GDP growth was 4.5%. The result is still increase in Per capital real GDP. If the population growth was above real GDP growth rate then only the per capita real GDP will decrease.

GDP per Capita Growth and Rule of 72
Current Year
Previous Year
Growth Rate
Real GDP
$8.4 trillion
$8.0 trillion
Population
202 million
200 million
GDP per Capita
$
$
Formulas you could use:
Growth Rate in percentage = (Current year value – previous year
value)/ previous year
GDP per Capita = Real GDP/population (Ch6 Section 6.4)
Future value = Present value x (1 + growth rate)^number of
years (Ch7 Section 7.2)
Rule of 72:
72/growth rate = number of...

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