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Computing Per Capita Income for Given Data

Question

  1. Consider two economies X and Y. The per capita income for X and Y are given as $20 and $ 60 respectively. The growth rates are 5% for X and 2% for Y.

a) In how many years, economy X will catch up with economy Y?

b) Compute the per capita income of X in the year it catches up with economy Y?

c) Suppose the values of health and education indices are .7 and .6 respectively, compute X’s HDI using the older version of the formula of HDI.

  1. Suppose the savings rate in an economy is 20% and capital – output ratio (c) is 4. First, using the basic H-D equation, calculate the growth rate.

a) What savings rate should be to get the growth rate (g) up to 8% and 10% per year?

b) Assuming s= .2, what c should be to get the g up to the same 8% and 10%? Explain what does a decrease in c mean in economic terms?

c) Suppose now assume the depreciation rate to be 3%. What s should be to keep g at 5%?

d) Now assume rate of population growth to be 2% per year. The savings rate is 20% and capital – output ratio is 4 and depreciation is 1%. What is the rate of per capita income growth? What happens to g, if n is 4% and 5%?

e) What rate of population growth would growth would drive the per capita growth rate to zero?

 

Summary

This question belongs to economics and discusses about computing per capita income for the given data.

Word count: NA

 

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