Question

Real GDP per person in Richland is $20,000, while real GDP per person in Poorland is $10,000. However, Richland's real GDP per person is growing at 1 percent per year, and Poorland's real GDP per person is growing at 3 percent per year. After 50 years, real GDP per person in Richland minus real GDP in Poorland is?

Answer 1

-$10,946

Step-by-step explanation:

Real GDP per capita in Richland is currently $20,000 and in 50 years it will = $20,000 (1 + 1%)⁵⁰ = $20,000 (1.01)⁵⁰ = $32,893

Real GDP per capita in Poorland is currently $10,000 and in 50 years it will = $10,000 (1 + 3%)⁵⁰ = $10,000 (1.03)⁵⁰ = $43,839

That means that the real GDP per capita in Poorland will be actually much higher than the real GDP per capita in Richland due to the higher growth rate. The difference between Richland and Poorland = $32,893 - $43,839 = -$10,946