Question

The economy of Bartovia had a GDP per capita of 1,200 dollars in 1960 when its population was 15 million people. In 2018, Bartovia’s aggregate GDP was 60 billion dollars and we know that its population had grown at an average annual growth rate of 1% from 1960 to 2018.

a. Compute the aggregate GDP of Bartovia in 1960.

b. Compute the average annual growth rate of aggregate GDP in Bartovia from 1960 to 2018.

c.Compute the population of Bartovia in 2018

Answer 1

Solution:

a) Aggregate GDP in 1960 = GDP per capita*population in 1960

Aggregate GDP = 1200*15 million = 18000 million or 18 billion dollars

b) Since we are not given whether growth is exponential (or compounded) or non compounded, we are assuming a non compounded growth. Then, average annual growth rate = (final value - initial value)*100/(initial value*n) ; where n is number of years. Here number of years duration = 58 years

So, average annual growth rate of aggregate GDP = (60 billion - 18 billion)*100/(18 billion*58) = 4.023%

c) With average annual growth rate of 1% for population, population level in 2018 = initial value*(1 + average annual growth rate *years)

= 15 million*(1 + 0.01*58) = 23.7 million

NOTE: Please note that the answers will be different in case of assumption of exponential growth.