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If real GDP grows at seven percent and population grows at two percent what is the approximate real per capita growth using the small-rate approximation?

Answer and explanation

Correct answer: About five percent

The relevant concept is per-capita growth: when rates are small, growth in output per person is approximately real GDP growth minus population growth. Thus, 7% − 2% = 5%. The exact calculation is (1.07 ÷ 1.02 − 1) × 100, which is about 4.90%, confirming the approximation. Therefore A is correct; B adds the rates, C multiplies or miscombines them, and D ignores output growth.

Related tags

Real-GdpPer-Capita-GrowthGrowth-RateNumericalGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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