In an economy both real GDP and population rise by five percent. What is the approximate effect on real GDP per capita?
Answer and explanation
Correct answer: It will remain approximately unchanged
Real GDP per capita equals real GDP divided by population. If initial output is Y and population is N, the new ratio is 1.05Y divided by 1.05N, which equals Y/N. Therefore per-capita real GDP is approximately unchanged, so option A is correct. It does not rise by five or ten percent because the numerator and denominator grow at the same rate.
Frequently asked questions
What is the correct answer to this question?
It will remain approximately unchanged
Why is this the correct answer?
Real GDP per capita equals real GDP divided by population. If initial output is Y and population is N, the new ratio is 1.05Y divided by 1.05N, which equals Y/N. Therefore per-capita real GDP is approximately unchanged, so option A is correct. It does not rise by five or ten percent because the numerator and denominator grow at the same rate.
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.
