Question

Sweden has real GDP per capita of $50,000, while Chile has real GDP per capita of $25,000. If real GDP per capita in Sweden grows at 2% and Chile's real GDP per capita grows at 4%, how long will it take for real GDP per capita in the two nations to converge?
A) 20 years
B) 35 years
C) 25 years
D) 15 years

Answer 1

Answer:

option (B) 35 years

Explanation:

Given:

Real per capita GDP of Sweden = $50,000

Real per capita GDP of Chile = $25,000

Growth rate of Sweden = 2%

Growth rate of Chile = 4%

As per the Rule of 70, the economy's GDP doubles in $\frac{\textup{70}}{\textup{Growth rate}}$

Therefore,

The GDP of Sweden will double in = $\frac{\textup{70}}{\textup{2}}$ = 35 years

and,

Chile will double in $\frac{\textup{70}}{\textup{4}}$ = 17.5 years

Therefore,

in 35 years the GDP of Sweden will be $100,000

and,

In 35 years the GDP of Chile will also be ($50,000 in 17.5 years and $100,000 in next 17.5 years) = $100,000

Therefore,

The real GDP per capita in the two nations to converge in 35 years

Hence,

The correct answer is option (B) 35 years