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Suppose that two poor countries experience different growth rates over time. Country A’s real GDP per capita grows at a rate of 7 percent per year on average, and Country B’s real GDP per capita grows at an average annual rate of only 3 percent. Predict how the standard of living will vary between these two countries over time as a result of divergent growth rates.

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Exploring Economics

8th Edition
Robert L. Sexton
Publisher: SAGE Publications, Inc
ISBN: 9781544336329

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BuyFindarrow_forward

Exploring Economics

8th Edition
Robert L. Sexton
Publisher: SAGE Publications, Inc
ISBN: 9781544336329
Chapter 20, Problem 5P
Textbook Problem
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Suppose that two poor countries experience different growth rates over time. Country A’s real GDP per capita grows at a rate of 7 percent per year on average, and Country B’s real GDP per capita grows at an average annual rate of only 3 percent. Predict how the standard of living will vary between these two countries over time as a result of divergent growth rates.

To determine

To explain:

The way there can be difference between the standard of living between two countries over time as a result of divergent growth rates.

Explanation of Solution

The economic growth of the country is normally measured by the real per capita. If the population of the country rises, there might be a possibility that GDP will not increase as the increased population might not be productive for the economy. Thus, the standard of living of people would reduce because more people would be using the same GDP which remains to be fixed. It can also be said that GDP measures the standard of living in the country...

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