In 2012, the imaginary nation of Platland had a population of 10,000 and real GDP of 42,000,000. During the year its real GDP per person grew by about 1.94%. Which of the following sets of growth rates is consistent with this growth in real GDP per person?

A. 3% population growth and 4% real GDP growth
B. 3% population growth and 5% real GDP growth
C. 6% population growth and 4% real GDP growth
D. 6% population growth and 5% real GDP growth

B. 3% population growth and 5% real GDP growth

Explanation:

2012 GDP per person = 42,000,000 ÷ 10,000 = 4,200

Current population (at 3% growth rate) = 10,000 + (10,000 × 3%) = $10,300

Current real GDP (at 5% growth rate) = 42,000,000 + (42,000,000 × 5%) =  44,100,000.00  

Current GDP per person = 44,100,000.00 ÷ 10,300 = $4,281.55  

Growth rate of GDP per person = ($4,281.55  - 4,200)/4,200 = 0.0194, or 1.94%.

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