Consider the following table displaying annual growth rates for nations X, Y, an
ID: 1225766 • Letter: C
Question
Consider the following table displaying annual growth rates for nations X, Y, and Z, each of which entered 2009 with real per capita GDP equal to $20,000:
Annual Growth Rate (%)
Country 2009 2010 2011 2012
X 7 1 3 4
Y 4 5 7 9
Z 5 4 3 2
a.) Which nation most likely experienced a sizeable earthquake in late 2009 that destroyed a significant portion of its stock of capital goods, but was followed by speedy investments in rebuilding the nation's capital stock? What is this nation's per capital real GDP at the end of 2012, rounded to the nearest dollar?
b.) Which nation most likely adopted policies in 2009 that encouraged a gradual shift in production from capital goods to consumption goods? What is the nation's per capita real GDP at the end of 2012, rounded to the nearest dollar?
c.) Which nation most likely adopted policies in 2009 that encouraged a quick shift in production from consumption good to capital goods? What is the nation's per capita real GDP at the end of 2012, rounded to the nearest dollar?
Explanation / Answer
(a) Country X. It registered sharp drop in growth from 2009 to 2010, but on steady increase ever since.
Per capita real GDP, 2012 ($) = 20,000 x 1.07 x 1.01 x 1.03 x 1.04 = 21,638
(b) Country Z. From 2009, it is experiencing lower growth rate due to lack of capital investment, which has caused lower long-term growth.
Per capita real GDP, 2012 ($) = 20,000 x 1.05 x 1.04 x 1.03 x 1.02 = 22,945
(c) Country Y. From 2009, it is experiencing steady growth caused by investment in capital goods.
Per capita real GDP, 2012 ($) = 20,000 x 1.04 x 1.05 x 1.07 x 1.09 = 25,472