Question

If the real GDP this year is $11 billion and it was $10 billion last year, and the population of this country grew from 1 million to 1.2 million, then the real GDP grew at:

a) 10%
b) 20%
c) -10%
d) -20%

Answer 1

The real GDP growth rate is 10%, calculated using the percentage change formula based on the real GDP values, which are adjusted for inflation. It does not take into account the population change for the calculation.

Step-by-step explanation:

The question asks how much the real GDP grew given that it increased from $10 billion to $11 billion, while the population grew from 1 million to 1.2 million. To calculate the growth rate of the real GDP, we do not look at the change in population. Instead, we focus on the increase in GDP itself, which can be calculated using the formula for percentage change:

Percentage Growth Rate = ((New GDP – Old GDP) / Old GDP) × 100%

So in this case:

Percentage Growth Rate = (($11 billion – $10 billion) / $10 billion) × 100% = (1 / 10) × 100% = 10%

Thus, the real GDP growth rate is 10%, not -10% as stated in the question. Also, this calculation assumes that values are adjusted for inflation, which means we are working with real GDP values. When real GDP is discussed, it refers to the production of goods and services valued at constant prices. It strips out the effects of inflation and allows for a more accurate comparison of economic performance across different time periods.