Assume a DVC has a real per capita output of $1,000 as compared to $20,000 for an IAC. If both nations realize a 4 percent growth of their real per capita outputs, after one year the absolute real
Per capita output gap will
A) remain unchanged at $19,000.
B) increase by $760.
C) decrease by $1,000.
D) increase by $19,760.

Question

Quizplus · Accepted Answer

After one year, the real per capita output of the DVC will be $1,040 and the real per capita output of the IAC will be $20,800. The absolute real per capita output gap will increase from $19,000 to $19,760 ($20,800 - $1,040 = $19,760). Therefore, the correct answer is B.

Assume a DVC Has a Real Per Capita Output of $1,000