At the beginning of the year, one developing country (DVC)has a real income per capita of $1,500. In a developed country (IAC), the real income per capita is $30,000. Both countries experience a 6 percent growth rate for the year. At the end of the year, the absolute income gap between these two countries will have increased from $28,500 to

Question

Quizplus · Accepted Answer

The absolute income gap increases because both countries grow at the same percentage rate, but the base amounts are different. For DVC: $1,500 * 1.06 = $1,590. For IAC: $30,000 * 1.06 = $31,800. The new gap is $31,800 - $1,590 = $30,210.

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