In: Economics
For the sake of this question, say that country A has a saving rate of 40% and country B has one of 10%. Also, country A’s workers have 7 years of schooling and B’s has 6 years. How do these two country’s per capita income compare?
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Question:
Answer:
GDP:
GDP (Gross Domestic product) is the total monetary value of finished goods and services produced in a country within a specific time duration. It is popular macroeconomic indicator to measure the economic health of the economy.
GDP= C + I + G + NX
Where,
C = Consumption
I = Investment
G = Government Spending
NX = Net Export
When GDP increase then its increase the employment level, income level, standard of living etc. High GDP increasing rate is a healthy sign for the economy and vice-versa.
GDP Per Capita:
GDP per capita is measure the GDP per person. A higher GDP pr capita is healthy sign for the economy.
GDP Per Capita = GDP/Population
When GDP increases its increased the GDP per capita that increase the consumption and saving level. Increasing GDP per capita increased the income level so, people spend and save more. Thus, higher economic growth rates should translate into higher savings rates
According to the question country A has a saving rate of 40% and country B has one of 10%. Also, country A’s workers have 7 years of schooling and B’s has 6 years.It means the saving rate and years of schooling of country A is higher than country B. It means the people of the country A get better education and spend and save more compare to country B. Country A has higher saving rate and people get better education because of higher GDP per capita and the government spend more on education also.
So, finally GDP per capita of country A is more than the country B.
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