Question

We have a country, Fantasyland, where the current per capita real income is 20,000 units of output, and the current average growth rate is 2.0 percent. What will be the difference in the standard of living twenty years from now if Fantasyland grows at a rate of 3.5 percent and we assume population is constant?

Answer 1

To find the difference in the standard of living in Fantasyland twenty years from now, we can use the formula to calculate the projected income. Given the current per capita real income of 20,000 units of output and the average growth rate of 2.0 percent, the projected income after twenty years would be approximately 39,560 units of output. Therefore, the difference in the standard of living twenty years from now would be approximately 19,560 units of output.

Step-by-step explanation:

In order to calculate the difference in the standard of living twenty years from now, we need to find the projected per capita real income of Fantasyland after twenty years.

Given that the current per capita real income is 20,000 units of output and the current average growth rate is 2.0 percent, we can use the formula:

Projected Income = Current Income * (1 + Growth Rate)^Time

Plugging in the values, the projected income after twenty years would be:

Projected Income = 20,000 * (1 + 0.035)^20

Calculating this, we find that the projected per capita real income after twenty years would be approximately 39,560 units of output. Therefore, the difference in the standard of living twenty years from now would be approximately 19,560 units of output.