Question

1. Defining economic growth and the rule of 72 Aa Aa E The real GDP and population data for two hypothetical countries, Panchal and Kosala, for the years 2010 and 2011 are given as follows. Real GDP (2010) Population (2010) Real GDP (2011) Population (2011) Panchal $3,264,000 6,000 $3,525,120 6,240 Kosala $16,840,000 15,000 $17,176,800 15,150 Between the years 2010 and 2011, Panchal's real GDP grew by . Similarly, Kosala's real GDP grew by Use the rule of 72 to help you answer the following question. For Panchal and Kosala, the absolute real economic growth rates (percentage change in real GDP) are 8% and 2%, respectively. If these rates of growth are sustained over a long period of time, it will take approximately years for the real GDP of Panchal to double. On the other hand, it will take Kosala approximately years. . Similarly, Kosala's real GDP per capita Between 2010 and 2011, Panchal's real GDP per capita grew by grew by In 2011, per capita real GDP of Kosala was higher than that of Panchal. The standard of living must be higher in Kosala. O O True False

Blank #1: $261,120 or $3,264,000 or $3,525,120 or $6,789,120?

Blank #2: $336,800 or $16,840,000 or $17,176,800 or $34,016,800?

Blank #3: 9, 11, or 36?

Blank #4: 3, 9, or 36?

Blank #5: $11, $21, or $565?

Blank #6: $11, $21, or $1,134?

T/F

Answer 1

Between the years 2010 and 2011, Panchal's real GDP will be grewed by {$(3,525,120 - 3,264,000)/$3,264,000}*100 ={ $261,120/$3,264,000 }*100 = 0.08*100 = 8%. Therefore the real GDP grew by $261,720. Ans. $261,720. It is 8% growth of real GDP.

Similarly Kosala's real GDP growth is $17,176,800 - $16,840,000 = $336,800. Ans. $336,000. In percentage $336,800/$16,840,000 = 0.02 = 2%.

If Panchal grows by 8% per year then it will take 72/8 =9 years to double it. So blank 3 will be 9 years.

If Kosala's real GDP 2% per year it will take 72/2 =36 years to double it. So blank 4 will be 36 years.

Between 2010 and 2011 , Panchal's real GDP per capita grows by ($3,525,120/6240) - ($3,264,000/6240) = $564.92 - $544 =$20.92 =$21(approx). The answer of blank 5 is $21.

Between 2010 and 2011 , Kosala's real GDP per capita grows by ($17,176,800/15,150) - ($16,840,000/15000) = $1133.78 - $1,122.66 = $11.12 = $11(approx). Therefore the answer is $11. The answer of Blank 6 will be $11.

In 2011, per capita real GDP of Kosala was higher than that of Panchal. The standard of living must be higher in Kosala. True. Answer is true.

Because as per capita income is higher in Kosala then this implies people will enjoy better stanadard of living. Higher income generally denotes higher standard of living.