Question

Suppose an economy's real GDP is $30,000 in year 1 and $31,200 in year 2.what is the growth rate of its real GDP? Asume that population is 100 in year 1 and 102 in year 2. What is the growth rate of GDP per capita?

Answer 1

Solution:

The growth rate of real GDP:

Economy's real GDP in year 1 = $\$30,000$

Economy's real GDP in year 2 = $\$31,200$

a.). Growth rate of real GDP = $\frac{(31,200 - 30,000)}{30,000} \times 100 = \frac{1,200}{30,000} \times 100 = 4\%$

b.). Population in year 1= 100

So, real GDP per capita in year 1 = $\frac{Real\; GDP}{Population} = \frac{30,000}{100} = \$300$

Population in year 2 = 102

So, real GDP per capita in year 2 = $\frac{Real\; GDP}{Population} = \frac{31,200}{102} = \$305.88$

Growth rate of real GDP per capita = $\frac{(305.88 - 300)}{300} \times 100 = \frac{5.88}{300} \times 100 = 1.96\%$