3. Solve the following problem that we discussed in class from the chapter on Ec

Question

3. Solve the following problem that we discussed in class from the chapter on Economic Growth: Assume the following Tollowing countries associated with the World Trade Organization (WTO); problem is based on 2015 e conomic data for the United States (IndustriallyAdvancedCountry)| The Grenadines (DevelopingCountry) Real GDP $15,000 billion population-300 million Real GDP = $1,000 billion population 100 million a. Based on the data above, calculate real GDP per capita for the United States and the Grenadines? b. What is the rule of 70? c. Assuming that real GDP per capita in the Grenadines grows at the rate of 5 percent per year, how many years will it take for Grenada's economy to converge on the same level as the United States real GDP per capita in 20152 d. Use graphs to illustrate and explain capital deepening? e. What is growth accounting?

Explanation / Answer

a). Real GDP per Capita (USA) = Real GDP/ Population = 15,000,000/300 = 50,000 per capita

Grenadines = 1,000,000/100 = 10,000 per capita

Both terms are in millions. We have converted the Billions into millions taking 1000 million = 1 billion

b). The rule of 70 helps to find out the number of years it would take for the incomes to double. Formula = 70/1+r

where r is the average rate of growth.

c). 50,000 = 10,000(1+0.05)t

50,000/10,000 = 1.05t

5 = 1.05t

Thus t = 15. It will take 15 years for Grandines to converge their income levels to that of US

e). Growth accounting can be defined as addition of various variables that lead to the aggregate national growth levels. It includes variables like factor inputs, labour productivity etc.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.