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PROBLEMS
1.
China’s output grew at an amazing rate of 10 percent per year in the 1990s. At
that rate how long will it take for China's GDP to double? (see Table 15.1). With its
population increasing at 0.6 percent per year, how long will it take for per capita GDP to
double?
At 10 percent a year, China’s GDP would double in 7.2 years (72/10). With
population growing at 0.6 percent a year, the growth rate per capita is the growth
rate of GDP subtracted by the growth rate of the population, in this case 10 - .06
= 9.4 percent. Using the Rule of 72 (72/9.4), it would take 7.7 years for China’s
GDP per capita to double.
2.
If real GDP is growing at 3 percent a year, how long will it take for:
a.
Real GDP to double?
b.
Real GDP per capita to double if the population is increasing each year by
i.
0 percent?
ii.
iii.
1 percent?
2 percent?
With real GDP growing at 3 percent a year:
(a)
Real GDP will double in 24 years (check Table 15.1 on page 344
or use "rule of 72" so that 72/3 = 24)
(b) Real GDP per capita will double in
i. 24 years. (72/3) Note that with no population growth, the
growth rate per capita is the same as the growth rate of Real GDP.
ii. 36 years. (3 - 1 = 2; 72/2 = 36)
iii. 72 years. (3 - 2 = 1; 72/1 = 72)
3.
In 2000, approximately 64 percent of the adult population (220 million) was
employed. If the employment rate increased to 65 percent:
a.
How many more people would be working?
b.
By how much would output increase if per worker GDP is $70,000?
a.
b.
4.
If there are 220 million adults in the U.S., and 64% of these were
working, then 140.8 million adults were working. If the
employment rate increased to 65 percent, then there would be 143
million adults would be working, an increase of 2.2 million people
working.
These 2.2 million people, each producing an average of $70,000,
would result in an increase in GDP of $154 billion.
According to the data in Figure 15.4, how fast did world GDP per capita grow
from
a.
1000 to 1500
b.
c.
1500 to 1820
1820 to 1995
a.
b.
c.
5.
$420 - $545 or a 29.8 percent growth rate.
$545 - $675 or a 23.9 percent growth rate.
$675 - $5,188 or a 668.6 percent growth rate.
Suppose that every additional 5 percentage points in the investment rate (I/GDP)
boosts economic growth by 1 percentage point. Assume also that all investment
must be financed with consumer saving. The economy is now characterized by:
GDP:
$6 trillion
Consumption:
$5 trillion.
Saving:
$1 trillion.
Investment:
$1 trillion.
If the goal is to raise the growth rate by 1 percent
a.
By how much must investment increase?
b.
c.
By how much must consumption decline for this to occur?
Are consumers better or worse off as a result?
If the goal is to raise the growth rate by 1 percent:
(a)
The investment rate must rise by 5 percentage points from 16.7% ($1
trillion / $6 trillion) to 21.7%. To achieve this with current GDP,
investment must increase to approximately $1,302 billion or $302 billion
more investment.
(b)
Consumption must decline by the same $302 billion to provide for the
increase in investment financed by savings.
(c)
Consumers spend less in the initial year, but they will benefit from having
a larger GDP in subsequent years.