Question

Real GDP per person in Northland is $30,000, while real GDP in Southland is $10,000, However, Northland's real GDP per person is growing at 1 percent per year, and Southland's real GDP per person is growing at 3 percent per year. If these growth rates persist indefinitely, then:A. Northland's real GDP per person will decline until it equals Southland's.B. Northland's real GDP per person will always be between 1 and 2 percent greater than Southland's.C. Southland's real GDP per person will always be exactly 2 percent less than Northland's.D. Southland's real GDP per person will eventually be greater than Northland's.

Answer 1

Answer:

D. Southland's real GDP per person will eventually be greater than Northland's.

Explanation:

If we compare the expansion of the GDP per person of both countries in the long run -100 years from now-, eventually, southland's real GDP will be greater.

Northland: 30.000 * (1 + 1%) ^ 100 =  $81.144  

Southland: 10.000 * (1 + 3%)  ^ 100 =  $192.186  

Despite Southland is 3 times greater than Northland GDP per person, the consistent and greater rate of growth let us conclude that Southland's real GDP per person will eventually be greater than Northland's.