Suppose economies A and B have the same initial level of GDP per capita at $15,0
ID: 2439178 • Letter: S
Question
Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1 percent per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5 percent. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A?
70 years
14 years
56 years
28 years
70 years
14 years
56 years
28 years
Explanation / Answer
Both countries start with an initial save level of GDP per capita i.e., $15,000. Each economy begins with a constant growth rate of 1%. Country A then improves to 5% growth rate, thus, the time taken by country B to reach country A would be:
Answer: (c) 56 years.