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Safari File Edit View History Bookmarks Window Help , -))) H, Mon 6:41 PM a E ng.cengage.com Economic Growth Activity Information Due on Dec 20 at 11 PM EST 2. Compound growth Aa Aa Small differences in the rate of economic growth can lead to large differences in living standards. Consider two countries, Outer Perturbia and Gadzhooks. Currently, real GDP per person (average income) is $41,000 in Outer Perturbia and $9,000 in Gadzhooks. Over the past decade, real GDP per person grew at a rate of 1.6% in Outer Perturbia and 3.2% in Gadzhooks Suppose you want to project what the real GDP per person will be in each country 100 years from now. You can use a simple formula to do so: Average Income in n years(Current Average Income) x (1 g)n In this formula, g represents the growth rate (in decimal form) of real GDP per person and n represents the number of years. If Outer Perturbia experiences average income growth of 1.6% per year for the next 100 years, its average income will rise to Average Income in 100 years ($41,000) x (1 0.016)100 = $200,519 Use the growth formula to fill in the following table. (Recall that average income is initially $9,000 in Gadzhooks.) Round your answers to the nearest dollar. Outer Perturbia Gadzhooks 1.696 Growth Rate Average Income After 100 Years 1.0% 3.2% 2.5% $200,519 If average income continues to grow at 1.6% per year in Outer Perturbia and 3.2% in Gadzhooks, real GDP per personExplanation / Answer
Average income after 100 years at 1% growth rate = 41000 * (1.01)^100 = 41000 * 2.7048 = $110,897
Average income after 100 years in Gadzhooks at 3.2% growth rate = 9000 * (1.032)^100 = 9000 * 23.3329 = $209,997
AVerage income after 100 years in Gadzhooks at 2.5% growth rate = 9000 * (1.025)^100 = 9000 * 11.8137 = $106,323
AS seen from above, if average income continues to grow at 1.6% in Outer Perturbia and 3.2% in Gadzhooks, the real GDP per person in outer Perturbia will be Less than real GDP per person in Gadzhooks after 100 years
In cash the rate is 1.0% in Outer P. and 2.5% in G. then real GDP per person will be Greater than that in Gadzhooks after 100 years
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