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

Microeconomics: Shift in Supply

We recently talked about the factors that cause a shift in the demand. It is now time to discuss the factors that shift the supply curve which cause the equilibrium price and demand to change. Determinants of Supply: changes in supply are caused by changes in the price of inputs, the number of firms in the market, technology, changes in the price of related goods and services, and changes in expected prices. An increase (decrease) in the price of an input results in less (more) supply as per unit production costs rise (fall). More competition increases supply, and less competition leads to less supply. If a new firm enters the market for good X, then the supply of good X increases. Improvement in technology can result in an increase in the ability of producers to supply their products. For example, the invention of the printing press increased the supply of books. An increase (decrease) in the price of a related good leads to an increase (decrease) in the supply of the other...
Post a Comment
Read more

Macroeconomics: different types of inflation and methods to stabilize inflation

  Types of inflation: Demand pull inflation: caused by a rightward shift in the aggregate demand. The increased in consumption among consumers for a limited amount of goods forces prices to rise. When the economy is below full employment, an increase in AD does not drastically change the price level, since the economy is not fully using its resources (workers and machines) and can therefore easily increase production. When the economy is at full employment, an increase in AD causes a large increase in inflation, it becomes relatively more costly to increase production. Methods for reducing demand pull inflation: Contractionary fiscal policies: raising taxes or reducing the government spending, will put downward pressure on the aggregate demand, and thereby reduces its rightward shift. Contractionary monetary policies: Usually, the central bank is the entity that deals with inflation. It does so by increasing the federal funds rate through open market transaction, which decreas...
Post a Comment
Read more