At the beginning of the year, one developing country (DVC) has a real income per capita of $800. In a developed country (IAC), the real income per capita is $30,000. Both countries experience a 4
Percent growth rate for the year. At the end of the year, the absolute income gap between these
Two countries will have increased from $29,200 to
A) $30,368.
B) $31,200.
C) $30,120.
D) $32,032.

Question

Quizplus · Accepted Answer

The absolute income gap increases because both countries grow at the same rate, but the developed country starts with a much higher base. The new income per capita for the DVC is $832 ($800 * 1.04), and for the IAC is $31,200 ($30,000 * 1.04). The new gap is $31,200 - $832 = $30,368.

At the Beginning of the Year, One Developing Country (DVC)