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Question

Economic You have to how me overwork as to how you work these P Diem sets. You can do it by hand or using excel. If you use excel or manually present your work to undress. nH In 2015 the rate of economic growth per capita in Brazil is 1.8% per year, .Venezuela it is 3.6%. The level of per capita real GDP was $28,900 in Brazil and $12,700 in Venezuela. Assume the growth rates for each country remain the same. Which country will have a higher level of potential output in 2050 and how much will it be? Suppose that real GDP per capita of Morocco is $30,000. RGDP per capita in Andorra is 15.000. Suppose that rate of growth of real GDP per capita in Morocco is 3.17 /o per year and in Andorra it is 6.34% per year. Using the rule of 72, calculate how many years a RGDP per capita in Andorra to catch up with RGDP per capita in Morocco.

Explanation / Answer

Ans 1 – The GDP of Brazil will grow at the rate of 1.8% and that of Venezuela is 3.6%.

Now we apply the future value concept to calculate the GDPs in 2050 for each country.

GDP in 2050 for Brazil = 28900 x (1.018) ^35 = $53959.768

GDP in 2050 for Venezuela = 12700 x (1.036) ^35 = $43792.038

Hence in 2050 Brazil will have a higher level of potential output with a GDP per capita of $53959.768 which is higher than that of Venezuela.

Ans 2 – We will have to calculate the year in which the RGDP per capita will be the same for both the countries.

With reference to the table below it can be seen that it will take approximately 23 years for Andorra to catch up with Morocco's RGDP per capita.

Year Morocco Growth Andorra Growth 0 30000 3.17% 15000 6.34% 1 30951 15951 2 31932.15 16962.29 3 32944.4 18037.7 4 33988.73 19181.29 5 35066.18 20397.39 6 36177.77 21690.58 7 37324.61 23065.76 8 38507.8 24528.13 9 39728.5 26083.22 10 40987.89 27736.89 11 42287.21 29495.41 12 43627.71 31365.42 13 45010.71 33353.99 14 46437.55 35468.63 15 47909.62 37717.34 16 49428.35 40108.62 17 50995.23 42651.51 18 52611.78 45355.62 19 54279.57 48231.16 20 56000.24 51289.02 21 57775.44 54540.74 22 59606.93 57998.62 23 61496.47 61675.74

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