Real GDP per capita in the United States is $10,000
In this case:
- Present Value = $10,000
- Interest Rate = 2.9% or 0.029
- Number of Periods = 5
Future Value = $10,000 * (1 + 0.029)^5
≈ $11,536.85
So, after 5 years, the real GDP per capita in the United States will be approximately $11,536.85.
Question 2: Comparing Standards of Living: Chile vs. Denmark
Understanding the Problem: We're given the population and GDP of Chile and Denmark. We need to determine which country has a higher standard of living.
Solution: To compare standards of living, we need to calculate GDP per capita for each country. GDP per capita is calculated by dividing the total GDP by the population.
For Chile:
- GDP per capita = GDP / Population = $253 billion / 19.5 million ≈ $13,000
For Denmark:
- GDP per capita = GDP / Population = $327 billion / 6.25 million ≈ $52,320
Conclusion: Denmark has a significantly higher standard of living than Chile. This is because its GDP per capita is much higher, indicating that, on average, each Danish citizen has a greater share of the country's economic output.
Question 3: Production Possibilities Frontier (PPF) and Economic Growth
Movement Between Points:
- Technology Change: A movement from point A to point B on the PPF would represent a technological advancement, allowing the economy to produce more of both goods without sacrificing any of the other.
- Increase in Capital per Worker: A movement from point A to point C on the PPF would represent an increase in capital per worker, allowing the economy to produce more of both goods.
Focus for a Wealthy Country:
A wealthy country should prioritize encouraging positive technological change. While increasing capital per worker can still boost economic growth, the diminishing returns to capital investment in such countries mean that technological advancements are more likely to yield significant productivity gains.
Explanation:
- Technological Change: Innovation can lead to the development of new products, more efficient production processes, and improved organizational methods, all of which can significantly boost economic growth.
- Capital per Worker: While additional capital can increase output, its impact may be limited in wealthy countries that already have a high level of capital investment.
In conclusion, while both capital accumulation and technological progress are important drivers of economic growth, a wealthy country should prioritize technological innovation to sustain long-term economic prosperity.
Question 1: Real GDP per Capita Growth
Understanding the Problem: We're given an initial real GDP per capita of $10,000 and an annual growth rate of 2.9%. We need to calculate the final GDP per capita after 5 years.
Solution: We can use the formula for compound interest to calculate the future value of the initial GDP per capita:
Future Value = Present Value * (1 + Interest Rate)^Number of Periods