If two countries start with the same real GDP/person and one country grows at 2 percent while the other grows at 4 percent ?
Correct answer: B. the standard of living in the country growing at 4 percent will start to accelerate away from the slower growing country due to compound growth
- A. one country will always have 2 percent more real GDP/person than the other
- B. the standard of living in the country growing at 4 percent will start to accelerate away from the slower growing country due to compound growth
- C. the standard of living in the two countries will converge
- D. Next year the country growing at 4 percent will have twice the GDP/person as the country growing at 2 percent
Explanation
With compound growth, the country growing at 4 percent increases its output per person faster each year, so its standard of living increasingly pulls away from the country growing at 2 percent. The gap is not a constant 2 percent difference.
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