If changes in economic policy could cause the growth rate of real GDP to increase by 1% per year for 100 years, then GDP would be ________% higher after 100 years than it would have been
Otherwise.

Question

Quizplus · Accepted Answer

The correct answer is based on the concept of compound growth. If the growth rate of real GDP increases by 1% per year for 100 years, the increase in GDP after 100 years can be calculated using the formula for compound growth: $ (1 + growth rate)^{number of years} $. Plugging in the values, we get $ (1 + 0.01)^{100} $, which equals approximately 2.7 times the original GDP, not just 2.7%. This means the GDP would be approximately 270% higher, not 2.7% higher. The choices seem to misunderstand the compound growth calculation, but the closest to the concept of how much higher the GDP would be after 100 years due to a 1% increase per year is reflected in the explanation rather than the options provided.

If Changes in Economic Policy Could Cause the Growth Rate