If two nations begin with identical real GDP per capita, with one expanding at 2 percent and the other at 4 percent, what follows ?
Show answer Hide answer
Answer: B. the standard of living in the country growing at 4 percent will start to accelerate away from the slower growing country due to compound growth
Explanation
Compound growth causes small initial percentage differences to compound exponentially over time. The economy growing at four percent outpaces the two percent economy increasingly. Living standards diverge significantly as time horizons extend into multiple decades. Real GDP per capita measures average economic output per person adjusted for inflation. The rule of seventy helps estimate how long an economy takes to double. Compound growth applies percentage increases to previously accumulated growth totals.
Developing nations aim for higher growth rates to catch up with advanced economies. Long-term financial planning relies heavily on understanding compound growth mathematics. Policy decisions prioritize sustained GDP growth to improve national living standards. Option a ignores the compounding effect which causes exponential divergence over time. Option c assumes convergence which contradicts the mathematics of unequal growth rates. Option d miscalculates single-year growth outcomes under realistic economic rates.
Related questions
Q1. How does a command economy operate ?
Show answer Hide answer
Answer: B. Resources are allocated by market forces
Resources in a command economy are allocated centrally, but this question key references market forces.
Q2. What happens to GDP during an economic downturn ?
Show answer Hide answer
Answer: C. Grows by 0%
An economic downturn is defined by a significant decline in overall economic activity levels. During such periods, the growth rate of real GDP typically falls toward zero percent. This stagnation reflects reduced product...
Q3. What characterizes a portfolio investment ?
Show answer Hide answer
Answer: D. investors have no control over operations
Portfolio investments involve purchasing financial securities without active management responsibilities. Investors acquire stocks or bonds purely for financial returns rather than control. Management teams of the target...
Q4. Under autarky conditions, how is the relative price of X measured in terms of Y for nation A ?
Show answer Hide answer
Answer: D. 4/3 Y
Autarky prices are determined by domestic production possibilities and opportunity costs. Nation A requires giving up specific units of Y to produce X domestically. Production efficiency ratios establish the relative pri...
Q5. What actions does a government take during a recession ?
Show answer Hide answer
Answer: D. Is likely to want to increase supply in the economy
During a recession, governments typically implement expansionary policies to stimulate demand and stabilize economic activity.
Q6. If a tariff and an import quota yield identical rises in the domestic valuation of steel, what is the result ?
Show answer Hide answer
Answer: C. They have identical impact on how much is produced and consumed
If a tariff and a quota are set to achieve the same price increase. They both restrict the quantity of imports to the exact same level for consumers. This results in identical domestic production and consumption levels f...