Question

The fictitious country "Alpha" has a real GDP per person of $10,000.

Instructions: Enter your responses rounded to two decimal places.

a. If Alpha has a 1% growth rate in real GDP per person, then after 10 years Alpha's real GDP per person is $ .

b. If Alpha has a 3% growth rate in real GDP per person, then after 10 years Alpha's real GDP per person is $ .

c. After 10 years, the difference in Alpha's real GDP per person based on the two growth rates is $ .

Answer 1

Answer : a) Per year growth rate of per person real GDP is 1%. So, per year growth of per person real GDP = Current real GDP * 1% = 10,000 * 1% = $100.

After 10 years the growth of per person real GDP = 10 * 100 = $1000.

So, after 10 years the Alpha's real GDP per person is (10,000 + 1,000) = $11,000.

b) Per year growth rate of per person real GDP is 3%. So, per year growth of per person real GDP = Current real GDP * 3% = 10,000 * 3% = $300.

After 10 years the growth of per person real GDP = 10 * 300 = $3000.

So, after 10 years the Alpha's real GDP per person is (10,000 + 3,000) = $13,000.

c) Based on above two growth rates, after 10 years the difference between Alpha's per person real GDP = 13,000 - 11,000 = $2,000.