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

The real per capita output for the DVC will increase by 4% of $1,000, which is $40, resulting in a new output of $1,040. For the IAC, a 4% increase on $20,000 is $800, leading to a new output of $20,800. The new gap is $20,800 - $1,040 = $19,760, which is an increase of $760 from the original gap of $19,000.

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