Multiple choice

In a hypothetical economy, the rate of growth of nominal GDP is 15% per annum and the annual rate of growth of GDP deflator is 5%. If the population is growing at the rate of growth of 2% per annum, what will be the annual rate of growth of per capita real GDP?

  1. 10%

  2. 3%

  3. 7%

  4. 8%
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D Correct answer
Explanation

Real GDP growth = Nominal GDP growth - GDP deflator growth = 15% - 5% = 10%. Per capita real GDP growth = (1 + Real GDP growth) / (1 + Population growth) - 1. Using approximation: 10% - 2% = 8%.

AI explanation

The annual rate of growth of real GDP is found by subtracting the GDP deflator growth from the nominal GDP growth, giving 15 percent minus 5 percent, which is a 10 percent growth. The per capita real GDP growth rate is the difference between the real GDP growth and the population growth rate, which is calculated as 10 percent minus 2 percent. This yields an annual rate of growth of 8 percent.

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