Consider the following table displaying annual growth rates for nations X, Y, Z,
ID: 1201626 • Letter: C
Question
Consider the following table displaying annual growth rates for nations X, Y, Z, and ZZ, each of which entered 2010 with real per capital GDP equal to $20,000:
A)Which nation was most likely to have suffered a sizable earthquake that destroyed a significant portion of its stock of capital goods? Explain. What is the nations per capita real GDP at the end of 2013? Show your work.
b) Which nation was most likely to have adopted policies in 2010 that encouraged a gradual shift in production from capital goods to consumption goods? Explain. What is this nation's per capita real GDP at the end of 2013? Show your work.
c) Which nation was most likely to have adopted policies in 2010 that encouraged a gradual shift in production from consumption goods to capital goods? Explain. What is this nation's real per capita GDP at the end of 2013? Show your work.
d) Using the growth rates for 2013 for each country, where will real per capita GDP be at the end of 2020 if it were to grow at this rate each year after 2013? Explain. Describe the standard of living in each country as compared to 2010. Show your work.
Annual Growth Rates(%) Country 2010 2011 2012 2013 4 4 4 2 2 2 2Explanation / Answer
Don't worry, the table is perfectly visible.
(a) Significant destruction of capital will considerably decrease annual growth rate. This happened to country X with sudden decline from 7% in 2010 to 4% next year, and continuing at same lower growth rate. So this happened in X.
For X, per capita real GDP, 2013 = $20,000 x 1.07 x 1.03 x 1.03 x 1.04 = $23,611.39
(b) A shift from production to consumption goods will increase consumption demand and increase aggregate demand, resulting in gradually increasing growth rate in real GDP per capita. This holds true for nation Y.
For Y, per capita real GDP, 2013 = $20,000 x 1.04 x 1.05 x 1.07 x 1.09 = $25,471.99
(c) A shift from production to consumption goods and t0 capital goods will result in increasingly lower growth rate in real GDP per capita, reflecting a slowing down of real GDP since personal consumption expenditure will keep falling, pulling down aggregate demand and real GDP. This holds true for nation Z.
For Y, per capita real GDP, 2013 = $20,000 x 1.05 x 1.04 x 1.03 x 1.02 = $22,945.10
(d) Real GDP per capita in 2020 (after 7 years) ($):
X: 23,611.39 x (1.04)7 = 23,611.39 x 1.3159 = 31,070.23
Y: 25,471.99 x (1.09)7 = 25,471.99 x 1.8280 = 46,562.80
Z: 22,945.10 x (1.02)7 = 22,945.10 x 1.1487 = 26,357.04
ZZ: 20,000 x (1.02)4 x (1.02)7 = 20,000 x 1.0824 x 1.1487 = 24,867.06
Compared to 2010, each country experiences higher standard of living because real GDP per capita in 2020 is higher than that in 2010 ($20,000) for all countries.