If GDP grew 3 per cent in 2010,2.2 per cent in 2011 and 2.5 per cent in 2012,then what is the average annual growth rate over this period?

Question

Quizplus · Accepted Answer

The average annual growth rate can be calculated using the formula:
[(GDP in final year / GDP in initial year)^(1/number of years)] - 1

Using this formula:
[(GDP in 2012 / GDP in 2010)^(1/3)] - 1
[(2.5 / 3)^(1/3)] - 1
(0.919) - 1
-0.081

Therefore, the average annual growth rate over this period is -2.6%. However, this calculation assumes a constant growth rate over the three years, which is not the case. To find the true average growth rate, we can use the formula:
[(GDP in final year / GDP in initial year)^(1/number of years)] - 1

[(1+0.03)*(1+0.022)*(1+0.025)]^(1/3) - 1
1.066 - 1
0.066

Therefore, the average annual growth rate over this period is approximately 6.6%, which is closest to choice B (2.6%).

If GDP Grew 3 Per Cent in 2010,2