In year 0, Nation A\'s GDP was $200 billion and it had $600 billion worth of cap
ID: 1198371 • Letter: I
Question
In year 0, Nation A's GDP was $200 billion and it had $600 billion worth of capital stock at the end od the year.In year 1, Nation A's GDP grew to $210 billion and its investment(saving) was $50billion. The rate of depreciation is 5%.Show your computations.
(a)what was the GDP growth rate in year1
(b)what was this nation's average capital-ouput ratio in year 0?
(c)what was this nation's incremental capital-ouput ratio in year1?
(d)If this nation's investment(and saving) in year1 had been $60billion and the incremental capital-output ratio was the same as in (c), what would have been its GDP growth rate that year?
Explanation / Answer
a) GDP growth rate = (210-200)*100/200 = 5%
b) average capital output ratio = total capital / total output = 600/200 = 3:1
c) incremental capital output ratio = investment / change in GDP = 50/10 = 5:1
d) If I =60 and incremental capital output ratio = 5 then change in GDP = 60/5 = 12
Now GDP growth rate = 12*100/200 = 6%