Question

6

A DVC’s population is growing 2 percent per year and output is growing 3 percent per year. If the government wants to improve living standards over coming decades, which of the following would probably be the best saving rate for the economy?

• 10 percent

• 0 percent

• 5 percent

• 2 percent

8

Assume a DVC and an IAC currently have real per capita outputs of $2,000 and $20,000, respectively.

Instructions: Enter your answer as a whole number.

If both nations have a 3 percent increase in their real per capita outputs, by how much will the per capita output gap change?

Answer 1

6. Ans: 10 percent

Explanation:

Higher savings leads to more investment and more ouput and ultimately an increase in the GDP. Among the options given above, 10 percent is highest saving rate. Thus, 10 percent is the correct answer.

8. Current per capita output gap = 20,000 - 2000 = $18,000

If per capita output increases by 3%,

DVC's new per capita output = 2000 * (1.03) = $2,060

IAC's new per capita output = 20,000 * (1.03) = $20,600

Now, the new per capita output gap = 20,600 - 2060 = $18,540

Changes in per capita output gap

= [(18540 - 18000) / 18000] * 100

= 3%