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# QUIZ 2 Answer Key - ECO 407 NAME Macroeconomic Theory Jan...

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ECO 407 Macroeconomic Theory Jan. 31, 08 NAME_________________ Student Number______________ QUIZ 2 Answer Key Section I 1. How do you compare GDPs across different economies? [15points] International comparisons of GDP involve two conversions. First, we need exchange rates to convert the measures into a common currency. Second, just as we need to use common prices to measure real GDP over time, we also need to use common prices to compare real GDP across countries. 2. In 2000, Ethiopia had a per capita income of \$635, less than \$2 per day. Compute per capita income in Ethiopia for the year 2050 assuming average annual growth is 4% per year. By which year will Ethiopia have doubled their GDP per capita [15 points] Using the formula ( ) ( ) 50 0 1 \$635* 1 0.04 \$4512.74 t t t Y Y g Y = + = + = Using the rule of 70, we get that it will take around 17.5 years for Ethiopia to double its GDP per capita. Hence the year by which Ethiopia doubles its GDP per capita is 2017 or 2018 (depending on the rounding) 3. What are the two points to note about the Rule of 70 ?[15 points] First, it is very informative in its own right. It shows that seemingly small differences in

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QUIZ 2 Answer Key - ECO 407 NAME Macroeconomic Theory Jan...

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