ECON2010 – BUSINESS ECONOMICS

WORKSHEETS
TOPIC 9 – Economic Growth

Textbook Problems

Problem 1:

Mexico’s real GDP was 14,461 billion pesos in 2016 and 14,702 billion pesos in 2017. Mexico’s population

was 121 million in 2016 and 122 million in 2017. Calculate

a. The growth rate of real GDP.

Ans) Economic expansion rate = (real GDP in 2017 - real GDP in 2016) / real GDP in 2016

= (14,702 - 14,461) / 14,461

Economic growth rate = 1.67%

b. The growth rate of real GDP per person.

Ans) Per person growth rate = (14,702/122 - 14461 / 121) / (14,461/121)

Per person growth rate = 0.83%

c. The approximate number of years it takes for real GDP per person in Mexico to double if the 2017

growth rate of real GDP and the population growth rate are maintained.

Ans) 2 = (1 + 0.83%) ^ n

n = log2 / log1.0083

n = 83.86 - 84 years to double

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Problem 2:

The IMF projects that China’s real GDP per person will be 57,163 yuan in 2017 and 60,334 yuan in 2018

and that India’s real GDP per person will be 98,028 rupees in 2017 and 104,191 rupees in 2018. By

maintaining their current growth rates, which country will be first to double its standard of living and

when will that happen?

CHINA

Real GDP per person in 2017 = 57,163 Yuan

Real GDP per person in 2018 = 60,334 Yuan

Calculate rate = [(Real GDP per person in 2018 - Real GDP per person in 2017) / Real GDP per person in

2017] x 100

Growth rate = [(60,334 - 57,163)/57,163] x 100

Growth rate of real GDP per person = 5.55%

Calculate the number of years in which real GDP per year gets doubled -

No of years = 70 / Growth rate of real GDP per person

= 70/5.55

= 12.61 years

This reveals that China will be able to double its GDP per person by 12.61 or 13 years approximately.

INDIA

Real GDP person in 2017 = 98,028 rupees

Real GDP per person in 2018 = 104,191 rupees

Calculate rate = [(Real GDP per person in 2018 - Real GDP per person in 2017) / Real GDP per person in

2017] x 100

Growth rate = [(104,191 - 98,028) / 98,028] x 100

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Growth rate per person = 6.29%

Calculate the number of years in which real GDP per year gets doubled -

No of years = 70/Growth rate of real GDP per person

= 70/6.29

= 11.13 years

This indicates that India will be able to double its GDP per person in about 11.13 years.

The following figures show that if current growth rates are maintained, India will be the first country to

double its living standards, as the number of years required to double GDP is less than China's.

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ADDITIONAL PROBLEMS

Problem 3

Suppose that in 2015 a country has a population of 1 million and real GDP of $1 billion. In 2016, the

population is 1.1 million and the real GDP is $1.1 billion. The real GDP per person growth rate is

The rate of growth in real GDP per person is equal to 0. This is due to the fact that neither the

population nor the Real GDP increased or decreased from 2015 to 2016.

Problem 4

Suppose a nation's population grows by 2 percent and, at the same time, its GDP grows by 5 percent.

Approximately how fast will real GDP per person increase?

Per person GDP = 5%-2%

= 3%

Per person GDP will increase by 3%

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Problem 5

Suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and $16

trillion in 2018. Over this time period, the real GDP growth rate is

Real GDP in 2015 = $13 trillion

Real GDP in 2016 = $14 trillion

Growth in Real GDP in 2015 - 2016 = [($14 trillion - $13 trillion) / $13 trillion] * 100

= 7.69%

Real GDP in 2016 = $14 trillion

Real GDP in 2017 = $15 trillion

Growth in Real GDP in 2016 - 2017 = [($14 trillion - $15 trillion) / $14 trillion] * 100

= 7.14%

Real GDP in 2017 = $15 trillion

Real GDP in 2018 = $16 trillion

Growth in Real GDP in 2017 - 2018 = [($16 trillion - $15 trillion) / $15 trillion] * 100

= 6.67%

Thus, over the time period, the real GDP growth rate is decreasing.

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Problem 6

Using the Rule of 70, if the country of Decade Dom’s current growth rate of real GDP per person was 10

percent a year, how long would it take the country's real GDP per person to double?

Growth rate = 10%

Number of years to double = 70/10

= 7 years

Therefore, the country of Decade Dom’s will take 7 years to double their GDP per person.

Problem 7

Slowgrownia's current growth rate of real GDP per person is 1 percent a year. Approximately how long

will it take to double real GDP per person?

Growth rate = 1%

Number of years to double = 70/1

= 70 years

Therefore, the country of Slowgrownia’s will take 70 years to double their GDP per person.

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Problem 8

If real GDP per person is growing at 4 percent per year, approximately how many years will it take to

double?

Growth rate = 4%

Number of years to double = 70/4

= 17.5 years or 18 approximately

Problem 9

Hu Tells Leaders China Growth Will Help World Economy

Chinese President Hu Jintao told world leaders that his country "has taken an active part in the

international cooperation to deal with the financial crisis'' by providing a "$586 billion economic

stimulus, focused on building low-rent housing, roads, railways and airports. The package also allows tax

deductions for fixed assets such as machinery to stimulate investment. Farmers will also benefit from

more subsidies."

Hu stated that "China is in itself an important contribution to international financial stability and world

economic growth.'' If the fiscal stimulus spending does generate economic growth, what can we expect

to see?

www.bloomberg.com 11/15/2008

Ans) There will be an increase in physical capital as well as an increase in the rate of economic growth. China is

increasing investment in a range of industries, particularly strategic ones, in order to improve the country's economic

status and stimulate growth. They believed that an Economic Stimulus Package like this would aid the recovery of the

economy from the crisis.

Problem 10

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According to UNESCO reporting, "Governments in North America and Western Europe invested the

highest shares of national resources in education: 5.6 percent of GDP." As a result, we would expect

________, all else held constant.

www.worldometers.info

Ans. As a result, if all other conditions remain constant, we should predict higher economic growth rates in

these countries than in other ones. Educated children will result in increased economic growth. Children

who have been schooled and are capable of working effectively with the abilities they have learned earlier.

They will not be unemployed and will be able to acquire wages quickly. These countries have superior

human capital and can expect faster economic growth than those that do not invest in education. rises.

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