Download PROBLEMS

PROBLEMS
1.
LO: 2
China’s output grew at an amazing rate of 10 percent per year from 2000 to 2007.
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?
AACSB: Analytic
BT: Application
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 – 0.6 = 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.
LO: 1
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.
1 percent?
iii.
2 percent?
AACSB: Analytic
BT: Application
With real GDP growing at 3 percent a year:
(a)
Real GDP will double in 24 years (check Table 15.1 on page 321 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.
LO: 1
In 2007, approximately 63 percent of the adult population (230 million) was
employed. If the employment rate increased to 64 percent:
a.
How many more people would be working?
b.
By how much would output increase if per worker GDP is $80,000?
AACSB: Analytic
a.
b.
4.
BT: Application
If there are 230 million adults in the U.S., and 63% of these were
working, then 144.9 million adults were working. If the
employment rate increased to 64 percent, then there would be
147.2 million adults would be working, an increase of 2.3 million
people.
These 2.3 million people, each producing an average of $80,000,
would result in an increase in GDP of $184 billion.
According to the data in Figure 15.4, how fast did world GDP per capita grow
from
a.
b.
c.
LO: 2
1000 to 1500
1500 to 1820
1820 to 1995
AACSB: Analytic
a.
b.
c.
5.
BT: Application
($545-$420)/$420 = 29.8 percent growth rate.
($675-$545)/$545 = 23.9 percent growth rate.
($5,188 - $675)/$675 = 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:
$10 trillion
Consumption:
$9 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.
By how much must consumption decline for this to occur?
c.
Are consumers better or worse off as a result?
LO: 1
AACSB: Analytic
BT: Application
If the goal is to raise the growth rate by 1 percent:
(a)
The investment rate must rise by 5 percentage points from 10% ($1
trillion / $10 trillion) to 15%. To achieve this with current GDP,
investment must increase to approximately $1,500 billion or $500
billion more investment.
(b)
Consumption must decline by the same $500 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.