Question

An economy starts off with a GDP per capita of $5,000. How large will the GDP per capita be if it grows at an annual rate of 2% for 20 years? 2% for 40 years? 4% for 40 years? 6% for 40 years?

Short answer

2% for 20 years- $7429.74

2% for 40 years- $11040.20

4% for 40 years- $24005.103

6% for 40 years- $51428.59

Step-by-step solution

Step1. Introduction

The Gross Domestic Product (GDP) can be defined as the value of all the final goods and services produced in a geographical boundary during a given period.

Step2. Calculation

Basic formula-

(1+x%)^n * GDP

n- number of years

GDP- initial/base

2% for 20 years- $7429.74

= (1+0.02)^20 * 5000

=$7429.74

2% for 40 years- $11040.20

=(1+0.02)^40 * 5000

=$11040.20

4% for 40 years- $24005.103

=(1+0.04)^40 * 5000

=$24005.103

6% for 40 years- $51428.59

=(1+0.06)^40 * 5000

=$51428.59