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.
Frequently asked questions
What is the correct answer to this question?
About five percent
Why is this the correct answer?
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.
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.
