Question

Country A has real GDP per person of 250,000 while Country B has real GDP per person of 500,000. All else constant, Country A will eventually have a higher standard of living than Country B if
a. the level of saving per person is 5,000 in Country A and 7,500 in Country B.
b. the level of saving per person is 3.000 in Country A and 6.000 in Country B.
c. Both of the above are correct.
d. None of the above are correct

Answer 1

Answer:

Option A is correct because the level of saving in percentage for company A is 2% (5000/250000). Whereas the level of saving in the company B is 1.5% which is lower than the savings of company A. This will increase the standard of life in the long run because greater the savings the greater is the amount invested in Financial assets which will decline the interest rate as the funds for investment are in excess it will decline the demand for loans. This investment will earn its investor more which will change his standard of life.

Remember standard of living is measured by:

GDP per capita= Total GDP/ Total population

So if the GDP per person is higher it means his saving are lower. And if the level of saving are lower then the standard of living will decline because the money available for investment is lower in amount. This will not save him enough to maintain his standard of living.

So its true because the level of saving rate of company A is higher this means the standard of living in the near future will also increase with faster pace.