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The annual rate of growth of real GDP in a developing nation is 0.3percent. Initially, the country's population was stable from year to year. Recently, however, a significant increase in the nation's birthrate has raised the annual rate of population growth to 0.5percent.

a. What was the rate of growth of per capita real GDP before the increase in population growth?

b. If the rate of growth of real GDP remains unchanged, what is the new rate of growth of per capita real GDP following the increase in the birthrate?

Short Answer

Expert verified

(a) The rate of growth of per capita real GDP before the increase in population growth is0.3%

(b) The new rate of growth of per capita real GDP following the increase in the birthrate is-0.2%

Step by step solution

01

Given information (part a)

The given information to find the rate of growth of per capita real GDP is as follows:

The annual rate of real GDP growth is0.3%

02

Real Gross Domestic Product.

The monetary market worth of all final goods and services produced within a nation's domestic territory during a specific period of time is referred to as GDP.

From the base period to the current time, real GDP is the nominal GDP adjusted by rising price levels (inflation).

The rate of growth of a variable is the rate at which that variable expands over time.

03

Formula for Rate of growth of per capital real GDP.

The following is the link between population growth rate, real GDP growth rate, and per-capita real GDP growth rate:Populationgrowthrate=RealGDPgrowthrate-RateofgrowtrhofpercapitalRealGDP

Therefore,

RateofgrowtrhofpercapitalRealGDP=RealGDPgrowthrate-Populationgrowthrate

04

Find the rate of growth of per capita real GDP (part a).

To determine the rate of growth of per-capita real GDP in the absence of such a change in the population growth rate, substitute the values of real GDP growth rate 0.3percent. This is accomplished as follows:

RateofgrowtrhofpercapitalRealGDP=RealGDPgrowthrate-Populationgrowthrate

=0.3%-0%=0.3%

Therefore, the Rate of growth of per capita real GDP before the increase in population growth is0.3%

05

Given Information (part b).

The following are the values to find the new rate of growth of per capita real GDP is,

Real GDP Growth rate is 0.3%

Population Growth rate is0.5%

06

Find the rate of growth of per capital real GDP (part b). 

Assume that the country's birth rate has boosted the population growth rate to 0.5percent. The real GDP growth rate remained constant at 0.3percent.

Following an increase in population growth, the rate of growth of per-capital real GDP is computed as follows:

RateofgrowtrhofpercapitalRealGDP=RealGDPgrowthrate-Populationgrowthrate=0.3%-0.5%=-0.2%

Hence, the rate of growth of per capital real GDP following the increase in the birthrate is-0.2%

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Most popular questions from this chapter

Why does the fact that population growth has ambiguous effects on real GDP growth complicate the Chinese government's efforts to accomplish its growth objective?

Over the entire interval since 2000, which group of countries has experienced a higher rate of economic growth: emerging and developing nations or advanced nations?

Assume that each 1billion in net capital investment generates 0.3percentage point of the average percentage rate of growth of per capita real GDP, given the nation's labor resources. Firms have been investing exactly 6billion in capital goods each year, so the annual average rate of growth of per capita real GDP has been 1.8percent. Now a government that fails to consistently adhere to the rule of law has come to power, and firms must pay 100million in bribes to gain official approval for every 1 billion in investment in capital goods. In response, companies cut back their total investment spending to 4 billion per year. If other things are equal and companies maintain this rate of investment, what will be the nation's new average annual rate of growth of per capita real GDP?

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Identify which of the following situations currently faced by the World Bank or the International Monetary Fund are examples of adverse selection and which are examples of moral hazard.

a. The World Bank has extended loans to the government of a developing country to finance construction of a canal with a certain future flow of earnings. Now, however, the government has decided to redirect those funds to build a casino that may or may not generate sufficient profits to allow the government to repay the loan.

b. The IMF is considering extending loans to several nations that failed to fully repay loans they received from the IMF during the past decade but now claim to be better credit risks. Now the IMF is not sure in advance which of these nations are unlikely to fully repay new loans.

c. The IMF recently extended a loan to a government directed by democratically elected officials that would permit the nation to adjust to an abrupt reduction in private flows of funds from abroad. A coup has just occurred, however, in response to newly discovered corruption within the government's elected leadership. The new military dictator has announced tentative plans to disburse some of the funds in equal shares to all citizens.

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