1 If real GDP per capita in the United States is 8000 what w

1) If real GDP per capita in the United States is $8,000, what will real GDP per capita in the United States be after 5 years if real GDP per capita grows at an annual rate of 3.2%? 2) Sweden has a population of 9.05 million, and a GDP of $3.85 billion. Ireland has a population of 4.21 million, and a GDP of $2.23 billion. Which country has a higher standard of living, and why?

Solution

1) Real GDP = 8000
After 5 years, Real GDP = 8000*(1+0.032)^5= 9364.58

2) Per Capita GDP = GDP/Population

Sweden is better as its per capita gdp is greater than Ireland

Population

GDP in $

Per Capita GDP in $

Sweden

9050000

3850000000

425.4

Ireland

9050000

2230000000

246.4

3) Movement from A to C, as we can see that with the increase in input the output increases at declining rate.

4) Movement from B to C, with the increase in technology, the productivity shifts which causes the production function to shift to upwards

5) Movement from D to C, as the productivity decreases

	Population	GDP in $	Per Capita GDP in $
Sweden	9050000	3850000000	425.4
Ireland	9050000	2230000000	246.4