Real GDP per person in Canada was $7,377 in 1950.Over the next 48 years it grew at a compound annual rate of 2.0%.If,instead,real GDP per person had grown at an average compound annual rate 2.5%,then real GDP per capita in Canada in 1998 would have been approximately __________ larger.

Question

Quizplus · Accepted Answer

Using the formula for compound interest/ growth, we can calculate the real GDP per capita in Canada in 1998 in two different scenarios:

Case 1: Real GDP per person grew at a compound annual rate of 2.0% 
Real GDP per capita in 1998 = $7,377 x (1 + 0.02)^48 = $16,562.03

Case 2: Real GDP per person grew at a compound annual rate of 2.5%
Real GDP per capita in 1998 = $7,377 x (1 + 0.025)^48 = $21,612.99

The difference in real GDP per capita between the two cases is:
Difference = $21,612.99 - $16,562.03 = $5,050.96

So, real GDP per capita would have been approximately $5,050 larger if it had grown at an average compound annual rate of 2.5% instead of 2.0%. Therefore, the correct answer is B) $5,050.

Real GDP Per Person in Canada Was $7,377 in 1950