If real GDP remains unchanged while population rises by 4 percent then what happens to real GDP per capita?
Answer and explanation
Correct answer: It will fall by about 3.8 percent
Real GDP per capita equals real GDP divided by population. If GDP stays at the same level while population becomes 1.04 times its original size, per-capita GDP becomes 1 ÷ 1.04 = 0.9615 of its former level. The decline is therefore about 3.85 percent, usually stated as 3.8 percent. It is not a 4 percent exact fall because the denominator changes multiplicatively.
Frequently asked questions
What is the correct answer to this question?
It will fall by about 3.8 percent
Why is this the correct answer?
Real GDP per capita equals real GDP divided by population. If GDP stays at the same level while population becomes 1.04 times its original size, per-capita GDP becomes 1 ÷ 1.04 = 0.9615 of its former level. The decline is therefore about 3.85 percent, usually stated as 3.8 percent. It is not a 4 percent exact fall because the denominator changes multiplicatively.
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.
