
Difference between the growth rate of

Explanation of Solution
GDP measures the value of all final goods and services produced by an economy in an accounting year.
It is given that the economy of countries A and B grow at an annual rate of 3 percent and 4 percent respectively. And the two countries start with a similar GDP.
The growth rate after 25 years can be calculated using the following formula-
Here,
FV represents the
PV represents the present value of GDP
t represents the total number of years
Assuming, the GDP of both countries equal to $10 at the initial stage. Plug the given values in (1) to determine the value of the GDP of both the countries after 25 years.
Country A
Thus, the future value of country A's GDP is equal to $20.094.
Country B
Thus, the future value of country B's GDP is equal to $26.65.
After 25 years, country B's economy is larger than country A by the following proportion,
Thus, country B's economy is approximately 27% higher than country A. The answer is not 25% because the rate at which the economy is growing is compounding.
Want to see more full solutions like this?
- 1. Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter." a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out shape. b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. c. Imagine that the society has two political parties, called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks might choose and a point the Doves might choose. d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger "peace dividend," measured by the increase in butter production? Explain.arrow_forwardA health study tracked a group of persons for five years. At the beginning of the study, 20%were classified as heavy smokers, 30% as light smokers, and 50% as nonsmokers. Resultsof the study showed that light smokers were twice as likely as nonsmokers to die duringthe five-year study, but only half as likely as heavy smokers.A randomly selected participant from the study died during the five-year period. Calculatethe probability that the participant was a heavy smokerarrow_forwardConsider two assets with the following returns: State Prob. of state R₁ R2 1 23 13 25% 5% 2 -10% 1% Compute the optimal portfolio for an investor having a Bernoulli utility of net returns u(r) = 2√√r+ 10. Compute the certainty equivalent of the optimal portfolio. Do the results change if short-selling is not allowed? If so, how?arrow_forward
- In the graph at the right, the average variable cost is curve ☐. The average total cost is curve marginal cost is curve The C Cost per Unit ($) Per Unit Costs A 0 Output Quantity Barrow_forwardWhat are some of the question s that I can ask my economic teacher?arrow_forwardAnswer question 2 only.arrow_forward
- 1. A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate fund, and the third is a (riskless) T-bill money market fund that yields a rate of 8%. The probability distributions of the risky funds have the following characteristics: Standard Deviation (%) Expected return (%) Stock fund (Rs) 20 30 Bond fund (RB) 12 15 The correlation between the fund returns is .10.arrow_forwardFrederick Jones operates a sole proprietorship business in Trinidad and Tobago. His gross annual revenue in 2023 was $2,000,000. He wants to register for VAT, but he is unsure of what VAT entails, the requirements for registration and what he needs to do to ensure that he is fully compliant with VAT regulations. Make reference to the Vat Act of Trinidad and Tobago and explain to Mr. Jones what VAT entails, the requirements for registration and the requirements to be fully compliant with VAT regulations.arrow_forwardCan you show me the answers for parts a and b? Thanks.arrow_forward
- What are the answers for parts a and b? Thanksarrow_forwardWhat are the answers for a,b,c,d? Are they supposed to be numerical answers or in terms of a variable?arrow_forwardSue is a sole proprietor of her own sewing business. Revenues are $150,000 per year and raw material (cloth, thread) costs are $130,000 per year. Sue pays herself a salary of $60,000 per year but gave up a job with a salary of $80,000 to run the business. ○ A. Her accounting profits are $0. Her economic profits are - $60,000. ○ B. Her accounting profits are $0. Her economic profits are - $40,000. ○ C. Her accounting profits are - $40,000. Her economic profits are - $60,000. ○ D. Her accounting profits are - $60,000. Her economic profits are -$40,000.arrow_forward
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning





