Assume an economy whose real GDP per capita is growing at a constant rate over a 35-year period doubles in size at the end of that period. What must the growth rate of real GDP per capita be for this economy?

Question

Nikolai Ruiz

Business

2 May, 01:34

Assume an economy whose real GDP per capita is growing at a constant rate over a 35-year period doubles in size at the end of that period. What must the growth rate of real GDP per capita be for this economy?

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Answers (1)

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Catherine Buckley · Answer 1

Approximately 2%

Explanation:

The growth rate (GR) formula is:

GR = ((Present value/past value) ^ (1/n)) - 1

For this problem we will use as present value 200 and for past value 100 because 100*2=200, and n will be 35 years:

GR=[ (200/100) ^ (1/35) ]-1

GR=[ 2^ (1/35) ]-1

GR = 1.0200 - 1

GR = 0.0200

The growth rate of real GDP per capita must be approximately 2%