Question

In 1950 GDP in the United Kingdom (measured in year 2005 pounds) was £317 billion. In 2000 it was £1,108 billion. Calculate the growth rate of real GDP in the United Kingdom over this period. Now suppose that the United Kingdom grows at the same rate for the 50 years following 2000. What will the UK real GDP be in the year 2050?

Answer 1

ANSWER:

1)

GDP IN 1950 = 317 BILLION POUNDS

GDP IN 2000 = 1108 BILLION POUNDS

GROWTH RATE OF REAL GDP = (GDP IN YEAR 2000 / GDP IN YEAR 1950) - 1 = (1108 / 317) - 1 = 3.495 - 1 = 2.495% OR 2.5% ( ROUGHLY)

2) REAL GDP IN 2050 = GDP IN YEAR 2000 * ( 1+GROWTH RATE) ^ NO OF YEARS

GDP IN YEAR 2000 = 1108 BILLION POUNDS

GROWTH RATE = 2.495%

NO OF YEARS = 2050 - 2000 = 50

REAL GDP IN YEAR 2050 = 1108 * ( 1 + 2.495%) ^ 50

REAL GDP IN 2050 = 1108 * (1.02495) ^ 50 = 1108 * 3.428736 = 3799.039 BILLION POUNDS