Question

Dan Demaar and Rob Runten are working on a class assignment on economic growth. Dan collects the GDP growth data for the country Fanez, which is located in the Middle East. He states that the standard of living in Fanez must have increased remarkably over the past ten years because it has a total GDP of $1,049 million, which is twice its GDP ten years back. Rob does not fully agree that the situation has improved substantially over these 10 years. He looks at the data and points out, that growth in Fanez was in fact very slow during this time. Its annual growth rate, while always positive, never exceeded 1.2 percent.Which of the following, if true, would weaken Dan’s argument?a. The growth rate of the population in Fanez has consistently exceeded the real GDP growth rate.b. Fanez has gradually moved toward a market economy with the government giving up control of most industries.c. Most of the growth in the economy is driven by the manufacturing and services sector.d. The number of patents issued to the citizens of Fanes has increased steadily over the years.e. Fanez introduced economic reforms four years back which included the removal of trade barriers and the introduction of a fiscal deficit target.

Answer 1

Answer:

A

Explanation:

If the growth rate of population in Fanez has consistently exceeded the real GDP growth, then the GDP per capita should be less than before. The GDP per capita is the division between the GDP (numerator) and the total population (denominator). If the denominator increases faster than the numerator then the GDP per capita decreases. Dan should measure the change in living standards in Fanez by looking the GDP per capita, because this measures how prosperous is the country by individual.