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.
Frequently asked questions
What is the correct answer to this question?
It will fall
Why is this the correct answer?
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.
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.
