EBK MACROECONOMICS
EBK MACROECONOMICS
5th Edition
ISBN: 8220106773925
Author: KRUGMAN
Publisher: MAC HIGHER
Question
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Chapter 9, Problem 3P
To determine

the table given and calculate the asked questions.

Concept Introduction:

Gross Domestic Product (GDP): All the finished goods and the services produced by the normal resident and nonresident people, have some gross money value or gross market value, these goods and services are prepared within the borders of the country in an accounting year.

Rule of 70: It is a numerical formula to determine the time period, that a variable will take to double itself.

Formula to calculate number of years variable will take to double itself:

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  1

Here:

  • R is current constant growth rate.
  • N is number of year it will take to be double.

Expert Solution & Answer
Check Mark

Answer to Problem 3P

a. Ratio of per capita GDP in 2012.

i. Middle-income to high-income countries.

Given,

Real GDP of middle-income country in 2015 is $4,584.

Real GDP of high-income country in 2015 is $41,038.

Formula to calculate ratio of per capita GDP of middle-income country to high-income country,

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  2

Substitute $4,584 for real GDP for the middle-income country and $41,038 for real GDP for the high-income country.

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  3

In the given case, ratio of per capita GDP of middle-income country to high-income country is 0.112.

ii. Low-income to high-income countries.

Given,

Real GDP of low-income country in 2015 is $588.

Real GDP of high-income country 2015 is $41,038.

Formula to calculate ratio of per capita GDP of low-income country to high-income country,

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  4

Substitute $588 for real GDP for the low-income country and $41,038 for real GDP for the high-income country.

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  5

In the given case, ratio of per capita GDP of low-income country to high-income country is 0.014.

iii. Low-income to middle-income countries.

Given:

Real GDP of low-income country in 2015 is $588.

Real GDP of middle-income country in 2015 is $4,584.

Formula to calculate ratio of per capita GDP of low-income country to middle-income country,

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  6

Substitute $588 for real GDP for the low-income country and $4,584 for real GDP for the middle-income country.

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  7

In the given case, ratio of per capita GDP of low-income country to middle-income country is 0.128.

b. Number of years taken by the low income and middle-income countries to double their per capita GDP.

Given,

Growth rate of low-income country is 2.3%.

Growth rate of middle-income country is 4.4%.

Formula to calculate number of year variable takes to double,

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  8      (I)

According to the given case, to double GDP the low-income country and middle-income country will take 30 years and 16 years respectively.

Number of years taken by low-income country to double its GDP.

Substitute 2.3 for yearly rate of growth in (I).

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  9

Therefore, to double GDP the low-income country will take 30 years.

Number of years taken by middle-income country to double its GDP.

Substitute 4.4 for yearly rate of growth in (I).

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  10

Therefore, to double GDP the middle-income country will take 16 years.

c. Per capita GDP of each of the regions in 2085.

Given,

Growth rate of high-income country is 1.0%.

Growth rate of low-income country is 2.3%.

Growth rate of middle-income country is 4.4%.

Formula to calculate number of year variable takes to double,

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  11

Substitute 1.0 for yearly rate of growth in (I).

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  12
  • Therefore, in 70 years, which will be in 2085, GDP per capita of high-income countries will be $82,076EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  13
  • If per capita GDP is to be projected then middle-income country will double its per capita GDP by 4 timesEBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  14Therefore, in 2085 per capita GDP of middle-income country will be $73,344EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  15
  • If per capita GDP is to be projected then low-income country, will double its per capita GDP by 2 timesEBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  16Therefore, in 2085 per capita GDP of low-income country will be $2,352EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  17

d. Projected per capita GDP in 2085.

Calculated (in part c. ),

Real GDP of low-income country in 2085 is $2,352.

Real GDP of middle-income country in 2085 is $73,344.

Real GDP of high-income country in 2085 is $82,076.

Middle-income to high-income countries.

Formula to calculate ratio of per capita GDP of middle-income country to high-income country,

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  18

Substitute $73,344. for real GDP for the middle-income country and $82,076 for real GDP for the high-income country.

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  19

Thus, ratio of per capita GDP of middle-income country to high-income country is 0.893.

Low-income to high-income countries.

Formula to calculate ratio of per capita GDP of low-income country to high-income country,

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  20

Substitute $2,352 for real GDP for the low-income country and $82,076 for real GDP for the high-income country.

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  21

Thus, ratio of per capita GDP of low-income country to high-income country is 0.028.

Low-income to middle-income countries.

Formula to calculate ratio of per capita GDP of low-income country to middle-income country,

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  22

Substitute $2,352 for real GDP for the low-income country and $73,344 for real GDP for the middle-income country.

    EBK MACROECONOMICS, Chapter 9, Problem 3P , additional homework tip  23

Thus, ratio of per capita GDP of low-income country to middle-income country is 0.032.

e. Comparison of part a. and part d.

According to the data calculated in the above parts the inequality between low-income countries and middle-income countries will increase with time.

Explanation of Solution

  • According to the calculated data, per capita GDP of low-income country and middle-income country have improved but per capita GDP of high-income country has not improved that much.
  • According to the calculated data, the growth middle-income countries are so fast that its growth in 2085 will surpass the present high-income countries growth.
  • The middle-income is growing at much faster rate as compared to low-income countries. Therefore, the inequality between low-income countries and middle-income countries will increase.

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