Question

In: Economics

India​'s real GDP was 17 comma 558 billion rupees in 2005 and 18 comma 683 billion...

India​'s real GDP was 17 comma 558 billion rupees in 2005 and 18 comma 683 billion rupees in 2006. The population was 1 comma 104.6 million in 2005 and 1 comma 122.7 million in 2006. Calculate India​'s economic growth rate in 2006​, the growth rate of real GDP per person in 2006​, and the approximate number of years it will take for real GDP per person in India to double if the 2006 economic growth and population growth rates are maintained.

Solutions

Expert Solution

Real GDP of India in 2005 = Rs. 17,558 bn

Real GDP in 2006 = Rs 18,683 bn

Economy growth rate of a country is calculated by reporting percentage change in real GDP over the years.

(Note: Unlike nominal GDP growth rate which also included price level/inflation effects, real GDP growth rate accounts solely for quantity effects since prices are calculated at base level, thus inflation effect is isolated. Hence real GDP growth rate is true indicator of economy's growth rate).

Thus India's economic growth rate in 2006:

Also, Real GDP per capita is defined as measurement of the total economic output of a country adjusted for inflation divided by the population of country.

Hence, mathematically:

Taking log both sides and differentiating, we get:

We have already calculated real GDP growth rate for 2006 = 6.41%

Growth rate of population:

Hence,

Let Real GDP per person in 2006 = R0

For real GDP per person to double, let no. of years taken be T.

Hence,

Assuming g remains same = 4.77% and RT = 2R0

Thus, it will take around 15 years for real GDP per person in India to double if the 2006 economic growth and population growth rates are maintained.


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