Question

Russia's real GDP (in U.S. dollars) was \(\$ 2.017\) trillion in 2012 and \(\$ 2.097\) trillion in 2013 Russia's population was 143.2 million in 2012 and 143.5 million in \(2013 .\) Calculate a. The growth rate of real GDP. b. The growth rate of real GDP per person. c. The approximate number of years it will take for real GDP per person in Russia to double if the current growth rate of real GDP is maintained.

Short answer

a. 3.97% growthb. 3.77% growthc. Approx. 18.56 years to double.

Step-by-step solution

Calculate the Growth Rate of Real GDP

The growth rate of real GDP is calculated using the formula \[ \text{Growth Rate} = \frac{\text{GDP in later year} - \text{GDP in earlier year}}{\text{GDP in earlier year}} \times 100 \].Substitute the given values: \[ \text{Growth Rate} = \frac{2.097 - 2.017}{2.017} \times 100 \approx 3.97\% \].

Calculate Real GDP per Person for Each Year

Real GDP per person is calculated by dividing the real GDP by the population for each year.For 2012: \[ \text{Real GDP per person}_{2012} = \frac{2.017 \text{ trillion USD}}{143.2 \text{ million people}} \approx 14,084 \text{ USD/person} \],For 2013: \[ \text{Real GDP per person}_{2013} = \frac{2.097 \text{ trillion USD}}{143.5 \text{ million people}} \approx 14,616 \text{ USD/person} \].

Calculate the Growth Rate of Real GDP per Person

Using the formula for growth rate: \[ \text{Growth Rate} = \frac{\text{Real GDP per person in later year} - \text{Real GDP per person in earlier year}}{\text{Real GDP per person in earlier year}} \times 100 \]. Substitute the values calculated earlier: \[ \text{Growth Rate} = \frac{14,616 - 14,084}{14,084} \times 100 \approx 3.77\% \].

Calculate the Approximate Number of Years for Doubling Real GDP per Person

Use the Rule of 70 to estimate the doubling time: \[ \text{Doubling Time} = \frac{70}{\text{Growth Rate}} \].Substitute the growth rate calculated for real GDP per person: \[ \text{Doubling Time} = \frac{70}{3.77} \approx 18.56 \text{ years} \].

Key concepts

real GDP

Real GDP, short for Real Gross Domestic Product, is a measure of the value of economic output adjusted for price changes (inflation or deflation). It provides a more accurate reflection of an economy's size and how it's growing over time compared to nominal GDP, which isn't adjusted.

By using real GDP, economists can get a clearer picture of whether an economy is truly growing or shrinking. Real GDP is calculated by dividing nominal GDP by the GDP deflator. This adjustment helps to factor out the impact of price level changes. In our exercise, we used real GDP figures for Russia in both 2012 and 2013 to analyze the growth rate accurately.

When calculating growth rates, it’s essential to focus on real GDP because it strips away the noise created by inflation, offering a more precise metric for evaluating the economic performance.

population growth

Population growth refers to the change in the number of people in a country or region over a given period. It's a crucial element in understanding economic growth, as it influences the calculation of real GDP per person.

In the exercise, Russia's population increased slightly from 143.2 million in 2012 to 143.5 million in 2013. Though this may seem like a small change, it can significantly impact per capita measures. When population grows, real GDP per person can rise more slowly unless the real GDP grows at a higher rate.

Evaluating economic performance on a per capita basis helps to understand whether the average individual's economic well-being is improving. Thus, the growth rates of both the total GDP and population are interlinked and critical for a comprehensive economic analysis.

Rule of 70

The Rule of 70 is a simple way to estimate how long it will take for a variable to double, given its annual growth rate. It's particularly useful in economics to project the future growth of GDP, investments, or any other financial metric.

The formula used in the Rule of 70 is: \[ \text{Doubling Time} = \frac{70}{\text{Growth Rate}} \] In our case, we estimated the time it would take for Russia's real GDP per person to double based on its growth rate of 3.77%. Using the Rule of 70, the calculation was as follows: \[ \text{Doubling Time} = \frac{70}{3.77} \approx 18.56 \text{years} \] This means that if the growth rate remains constant, it will take approximately 18.56 years for the real GDP per person to double. This method is particularly beneficial for long-term economic planning and projections.

economic growth rate

The economic growth rate is a measure of how quickly an economy is expanding. It's typically expressed as a percentage increase in real GDP from one period to the next.

In the exercise, we calculated the growth rate of Russia's real GDP by comparing the figures from 2012 and 2013. The formula for the growth rate is: \[ \text{Growth Rate} = \frac{\text{GDP in later year} - \text{GDP in earlier year}}{\text{GDP in earlier year}} \times 100 \] By substituting the given values, the growth rate was found to be 3.97%.

This growth rate is significant because it tells us how fast the economy is growing without the distortions of inflation. It's a critical indicator for policymakers, businesses, and investors as it reflects the overall health and potential of an economy.