Real GDP per person in the country of Flip is $10,000, and the growth rate is 10 percent a year. Real GDP per person in the country of Flap is $20,000 and the growth rate is 5 percent a year. When will real GDP per person be greater in Flip than in Flap?

Question

Quizplus · Accepted Answer

The growth rate of Flip is 10% and its initial GDP per person is $10,000. Flap has an initial GDP per person of $20,000 with a growth rate of 5%. Using the formula for compound growth, Flip will surpass Flap in approximately 15 years. This is because the higher growth rate of Flip allows it to double its GDP per person faster than Flap can grow its larger base by a smaller percentage.

Real GDP Per Person in the Country of Flip Is