Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 20, Problem 5P
To determine
To explain:
The way there can be difference between the standard of living between two countries over time as a result of divergent growth rates.
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Small differences in the rate of economic growth can lead to large differences in living standards. Consider two countries: Fritolaysia and Khandibar.
Currently, real GDP per person (average income) is $60,000 in Fritolaysia and $20,000 in Khandibar.
Suppose you want to project what the real GDP per person will be in each country 100 years from now. The following formula shows how to compute
the average income in n years, where g represents the growth rate of real GDP per person (in decimal form-that is, 1.5% is entered as 0.015):
Average Income in n Years Current Average Income x (1 + g)"
Use the growth formula to find the correct amounts to select to fill in the following table.
Growth Rate Average Income after 100 Years
(Percent)
(Dollars)
1.5
1.7
4
4.2
1 1.5%
1.7%
Suppose Fritolaysia is expected to grow at 1.7% for the next 100 years. Which of the following growth rates in Khandibar would cause the average
income in Khandibar to exceed the average income in Fritolaysia in 100…
Suppose country A's GDP per capital is $50,000 with yearly economic growth of 2.5% and country B's GDP per capital is $20,000 with annual economic growth of 4%. How many years will it take for country A to catch up with country B in terms of GDP per capital? please explain with steps.
Assume that a leader country has real GDP per capita of $80,000, whereas a follower country has real GDP per capita of $40,000.
Next suppose that the growth of real GDP per capita falls to zero percent in the leader country and rises to 5 percent in the follower
country. If these rates continue for long periods of time, how many years will it take for the follower country to catch up to the living
standard of the leader country?
Instructions: Enter your answer as a whole number.
years
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