The rate of economic growth per capita in Mamoogia from 20006 to 2010 was 1.8% per year, while in Kennan, over the same period it was 3.6%. In 2010, per capita real GDP was $28,900 in Mamoogia and $12,700 in Kennan. Assume the growth rates for each country remain the same. Which country will have a higher level of potential output in 2050?

Question

Quizplus · Accepted Answer

The rate of economic growth per capita in Mamoogia is half of what it is in Kennan. Therefore, over time, Kennan will have a higher level of potential output since its growth rate is higher. The initial gap in per capita real GDP between the two countries does not matter since we are looking at potential output, which takes into account the growth rate.

The Rate of Economic Growth Per Capita in Mamoogia from 20006