A country’s real GDP grows by 10%, but its population grows by 12%. What happens to the indicator of average economic welfare?
Answer and explanation
Correct answer: Real GDP per capita will fall
Real GDP per capita is calculated as real GDP divided by population. Here the numerator rises by 10% while the denominator rises by 12%, so output per person decreases. More precisely, the ratio changes by 1.10/1.12, which is about 0.982, or a fall of roughly 1.8%. Thus D is correct; equal growth would be needed for an approximately unchanged ratio.
Frequently asked questions
What is the correct answer to this question?
Real GDP per capita will fall
Why is this the correct answer?
Real GDP per capita is calculated as real GDP divided by population. Here the numerator rises by 10% while the denominator rises by 12%, so output per person decreases. More precisely, the ratio changes by 1.10/1.12, which is about 0.982, or a fall of roughly 1.8%. Thus D is correct; equal growth would be needed for an approximately unchanged ratio.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
