In 2020, a nation recorded a nominal Gross Domestic Product (GDP) of 400 billion with a GD… — JAMB UTME

In 2020, a nation recorded a nominal Gross Domestic Product (GDP) of $400 billion with a GDP deflator of 100 and a total population of 80 million. By 2024, its nominal GDP rose to$ 750 billion, the GDP deflator increased to 125, and the population grew to 100 million. Based on these economic indicators, what was the percentage change in the nation's real per capita income between 2020 and 2024?

An increase of 20.0%Answer
B
An increase of 50.0%
C
An increase of 87.5%
D
An increase of 25.0%

Answer

An increase of 20.0%

Real per capita income measures the actual purchasing power available to an average citizen. Adjusting 2020 and 2024 nominal GDP by their respective deflators gives Real GDP figures of

400 billion and

600 billion. Dividing by population yields real per capita income of

5,000 in 2020 and

6,000 in 2024, representing a 20.0% increase.

Step-by-Step Solution

Calculate Real GDP for 2020 and 2024 using the GDP deflator

Real GDP (2020) =

400 billion; Real GDP (2024) = (

750 billion ÷ 125) × 100 = $600 billion

Inflation must be removed from nominal GDP figures to measure true output levels.

Calculate Real Per Capita Income for both years

Real Per Capita Income (2020) =

400 billion ÷ 80 million =

5,000; Real Per Capita Income (2024) =

600 billion ÷ 100 million =

6,000

Dividing real output by total population gives the average real income per individual.

Compute the percentage change in real per capita income

((

6,000 -

5,000) ÷ $5,000) × 100% = 20.0%

Determines the net percentage improvement in average real living standards.

Key Concept

Real Per Capita Income Adjustment

Estimated Time:2m 0s

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