Reference no: EM131483067

Question: The Chinese economy currently produces a GDP of roughly $10 trillion with over 1.3 billion people, so its GDP per capita is roughly $7,500. Contrast this with the United States, which produces over $13 trillion GDP with a population of roughly 300 million or nearly $44,000 per person. If an economy, adjusted for inflation, grows at 3% annually, it will be 4.4 times bigger in 50 years; at 5% growth, it will be 11.5 times bigger, and if it grows at 10% annually, it will be 117.4 times larger in 50 years.

If the United States grows at an average annual rate of 3% over the next 50 years and China grows at 10%, will China's standard of living or per capita income catch up to that of the United States? Under what assumptions would China have a larger economy than the United States in 50 years? Answer the same questions if China only grows at a real rate of 5% and the United States grows at 3%. Considering the classical model in the chapter and the factors that contribute to long-run growth, is 10% or 5% growth for China more likely?