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If real GDP rises by 5 percent and population rises by 7 percent, what is the likely effect on per capita real GDP?

Answer and explanation

Correct answer: It will fall

Per capita real GDP equals real GDP divided by population. If real GDP rises by 5% but population rises by 7%, the denominator grows faster than the numerator. Using the approximate growth rule, per capita real GDP changes by about 5% − 7% = −2%. Thus, it is likely to decline, even though total real GDP has increased. This comparison assumes other measurement conditions remain unchanged.

Related tags

Per Capita GdpReal GdpPopulation GrowthEconomic GrowthGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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