Question

Consider the following data for the country below.

Real GDP per Capita$60,000, Year 1 Population 300 ,Year 1 and Year 2(Millions) Inflation Rate(%) 3 Growth Rate Real GDP (%),Year 1 to Year 2 8

Instructions: In part a, enter your answer as a whole number. In part b, round your answer to 2 decimal places.

a. What is real GDP per capita in year 2? $

b. What is real GDP in year 2? $ trillion

Answer 1

Consider the given problem here the “Real GDP” is the market value of the all good and services at “base price” or mathematically it is the ratio of “Nominal GDP” to “P=Price level”. Similarly the “per capita real GDP” is the ratio of “Real GDP” to “population size”.

So, let’s assume that “Y=GDP”, “P=price level” and “L=population size”.

SO, the “real GDP” is “Y/P” and “real per capita GDP” is “Y/PL”.

Here we have given that the “population size” in both the year is “300 million” and “real GDP per capita” is “$60,000” in the 1^st period.

Now, “real per capita GDP” is “Y/PL”,

=> growth(real per capita GDP) = growth(Y) - growth(P) - growth(L), where “growth(L) = 0” and “growth(real GDP)” is “growth(Y) - growth(P)” is “8%” given.

=> growth(real per capita GDP) = growth(real GDP), since growth(L) = 0.

=> “real per capita GDP” in year 2 is given by ”60,000*1.08 = $64,800.

b).

Now, “real GDP” in “year2” is “real per capita GDP”*L = 64,800*300 = $19,440,000.