Real GDP grows by five percent and population grows by eight percent. What approximately happens to real GDP per capita?
Answer and explanation
Correct answer: It will fall by about three percent
Real GDP per capita equals real GDP divided by population. For relatively small percentage changes, its growth is approximately the growth of real GDP minus population growth: 5% − 8% = −3%. The exact ratio is 1.05 divided by 1.08, which is about 0.972, or a decline of nearly 2.8%. Therefore, the closest and most appropriate answer is an approximately 3% fall.
Frequently asked questions
What is the correct answer to this question?
It will fall by about three percent
Why is this the correct answer?
Real GDP per capita equals real GDP divided by population. For relatively small percentage changes, its growth is approximately the growth of real GDP minus population growth: 5% − 8% = −3%. The exact ratio is 1.05 divided by 1.08, which is about 0.972, or a decline of nearly 2.8%. Therefore, the closest and most appropriate answer is an approximately 3% fall.
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.
