Question

Over the next 100 years, real GDP per capita in Groland is expected to grow at an average annual rate of 2.0%. In Sloland, however, growth is expected to be somewhat slower, at an average annual growth rate of 1.5%. If both countries have a real GDP per capita today of $20,000, how will their real GDP per capita differ in 100 years? The living standard in Sloland will be 51.8% of that in Groland. The living standard in Sloland will be 61.2% of that in Groland. The living standard in Sloland will be 25.6% of that in Groland.

Answer 1

Answer:

Sloland's per capita income will be 61.18% of Groland.

Explanation:

real per capita GDP of Groland's after 100 years will be = 20000 x (1 + 2%)100 = $ 144892.92

real per capita GDP of Sloland's after 100 years will be = 20000 x (1 + 1.5%)100 = $ 88640.91

In 100 years, Sloland's real per capita GDP will be = 88640.91/144892.92 x 100 = 61.18  % of Groland's.

Answer 2

The living standard in Sloland will be 61.2% of the living standard in Groland.

The real per capita GDP after 100 years can be calculated using the relation :

• GDP today(1 + growth rate)^100

For Groland :

• GDP in 100 years = 20000(1 + 0.02)^100 = $144892.92

For Sloland :

• GDP in 100 years = 20000(1 + 0.015)^100 = $88640.912

Comparing the REAL GDP per capita :

• (88640.912/144892.92) × 100% = 0.6117 × 100% = 61.17% = 61.2%

Therefore, the living standard in Sloland will be 61.2% of that in Groland

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