Question

In 1990, the country of Freedonia had real GDP of $16.0 billion. If the annual GDP growth rate was 2.3%, then what would be Freedonia's real GDP in 2015?

$28.25 billion. |
||

$31.56 billion. |
||

$39.71 billion. |
||

$17.33 billion. |

Answer #1

It is given that the real GDP in 1990 was $16 billion. The GDP growth rate is 2.3% per annum. GDP at any future date can be calculated by the following formula:

F = P (1+g)^{n}

Where F is the furure GDP, P is the present GDP, g is the growth rate and n represents the number of years.

Putting the values:

F = 16 (1 + 0.023)^{25} (n = 2015 - 1990 = 25)

F = 16 (1.023)^{25}

F = 1.7656 16

F = 28.25 (approximately)

So, the real GDP in 2015 is 28.25 billion.

Therefore, the correct answer is 'Option A'.

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