Skip to main content

Exercise: GDP growth rate

Exercise:

Assume that country Y has a population of 458 with a constant yearly (population) growth rate of about 2.8%. Find real GDP per capita and the real GDP growth rate for each year from 2015 to 2019. Describe the relationship between the per capita GDP and the GDP growth rate.

YearPopulation Real GDP p.c GDP  GDP growth rate
2015458$23,457...n.a
2016...$23,943......
2017...$24,035.2......
2018...$25,431.1......
2019...$24,950.6......

Solution:

YearPopulation Real GDP p.c GDP  GDP growth rate
2015458$23,457$51.1n.a
2016471$23,943$50.72.06%
2017483$24,035.2$49.80.39%
2018498$25,431.1$51.15.81%
2019510$24,950.6$48.8-1.89%

General formula for constant population growth:


i stands for year (2015, 2016, etc ...). Example:


To find the per capita GDP divide the GDP of year i by its population. Example:


GDP growth rate is simply the percentage change between this year's GDP and the GDP from the previous year (remember the formula in the previous lesson?). Then, the GDP growth rate for the year 2019 is:


Notice that in the year 2019, the economy of country Y is contracting (i.e getting smaller).


Lastly, by looking at the columns for p.c GDP and GDP growth rate, describe what pattern you see.

If the GDP growth rate is smaller (bigger) than the population growth rate, the GDP per capita decreases (increases) compared to the previous year.  

Labels:
Location: New York, NY, USA

Comments

Post a Comment

Popular posts from this blog

Macroeconomics: multiplier and crowding out effects

Multiplier effect: whenever   any of the components of AD increases, the increase in GDP will be greater than the initial increase in expenditures. The impact on GDP of a particular increase in spending depends on the proportion of the new income that is taken out of the system to the proportion that continues to circulate in the economy. The multiplier effect tells us the impact a particular change in one the components of AD will have on the total income (GDP).  Let k denote the spending multiplier, which is a function of MPC and MPS. The larger the marginal propensity to consume, the larger the spending multiplier. Notice that the larger the MPC, the greater the impact a particular change in the spending variables will have on the nation's GDP. The crowding out effect: If government spending increases without an increase in taxes, the government must borrow funds from the private sector to finance its deficit, thereby increasing the interest rate. This increase in interest ...
Post a Comment
Read more

Exercise: maximizing profit

Assume that you are the owner of a small business that produces T-shirts. Your the total revenue for your business can be modeled by the following equation: and your total cost corresponds to this function: Find the point at which your firm maximizes its profit. Then, find how much profit the firm if able to earn at that point. Using the total cost and total revenue functions we can set up the profit function: Then, realize that if you want to find the maximum profit, take the derivative of the function and set it up equal to zero, and solve for Q. This is equivalent of taking the derivative of the total cost and total revenue functions and setting them equal to each other. In this problem, I chose the latter option as it was explained in the previous lessons. Notice that profit is often denoted by a capital pi.  We are assuming that the TR>TC for some positive value, you can check for yourself. However, if we did not know that, we would first take the first ...
Post a Comment
Read more

A short interlude...

Hello all, it's been quite some time since I have made any major announcements since the creation of this blog about a year and a half ago. I am currently in graduate school and will soon take a portion of my comprehensive examination (i.e exams in Micro, Macro, and Metrics that will allow me to continue my studies in my graduate program), wish me luck! Thus, I will not be able to post consistently until at least mid-June. The roadmap is as such, if I pass, I will start introductory lessons in Econometrics and Statistics (if not, then I'll have to study until I can retake the comps in August). I hope that once I am done, I will be able to add more advance materials to the blog, such as general equilibrium, indirect utility functions, and game theory/mechanism design for Micro. The Solow, Ramsey, RBC, New Keynesian models, permanent income hypothesis (PIH) and more for Macro. By the way I think I still need to add notes on the IS-LM curves, so I will do that before jumping to t...
Post a Comment
Read more