ECON 201A - Assessment: Growth

Suppose that real GDP per capita in Italy is $32,000. If real GDP per capita is growing at a rate of 2.5% per year, how many years will it take for real GDP per capita to reach $64,000? 28.8 years

Explanation If real GDP per capita is $32,000, then $64,000 would represent a doubling of real GDP per capita. With the rule of 72, if we divide 72 by the growth rate in a variable, it will tell us how long it will take for that variable to double. In this case, we would like to know how long it will take for real GDP per capita to double if the growth rate is 2.5%. Therefore, take 72/2.5 = 28.8, which means it will take 28.8 years for real GDP per capita to double (or reach $64,000).

Which of the following statements about economic growth is accurate? The world's sustained economic growth has only been occurring over the last 300 to 400 years.

Explanation Prior to the 1600s, almost everyone in the world lived in deep poverty and there was practically no economic growth. During the 1600s and 1700s, economies began to experience some economic growth, which really increased in the 1800s and 1900s (likely due to the Industrial Revolution).

Which of the following is the best equation for calculating the growth rate in the standard of living? Growth Rate of Real GDP per Capita = ((Year 2 Real GDP per Capita - Year 1 Real GDP per Capita)/Year 1 Real GDP per Capita) × 100%

Explanation The standard of living is measured using the rate of growth of real GDP per capita. Growth Rate of Real GDP per Capita = ((Year 2 Real GDP per Capita - Year 1 Real GDP per Capita)/Year 1 Real GDP per Capita) × 100% Real GDP per capita reflects real changes to output or income on a per-person basis. We break down the growth of real GDP into increases in population (increased output due to more workers) and increases in productivity (increased output due to more productive workers). Since we want to examine the increase in the standard of living, we only want to examine the increase in productivity as measured by the growth of real GDP per capita.

The benefit of economic growth is: fewer people in poverty.

Explanation Economic growth has reduced the number of people living in poverty around the world. As the world experienced economic growth, incomes reached levels that allowed peasants to live like the upper class. While there is still income inequality across the world, the percentage of the world population living in poverty has decreased.

Suppose that real GDP per capita in the United States is $53,000. If the long-term growth rate of real GDP per capita is 3.6% per year, how many years will it take for real GDP per capita to reach $106,000? 20 years

If real GDP per capita is $53,000, then $106,000 would represent a doubling of real GDP per capita. With the rule of 72, if we divide 72 by the growth rate in a variable, it will tell us how long it will take for that variable to double. In this case, we would like to know how long it will take for real GDP per capita to double if the growth rate is 3.6%. Therefore, take 72/3.6 = 20, which means it will take 20 years for real GDP per capita to double (or reach $106,000).