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    7.1 and 2 Answer Key

    Uploaded by

    sama nassar
    This document contains multiple examples of calculating compound and simple interest rates over time, real GDP per capita with different growth rates, calculating real GDP from employment rates and average productivity, and comparing investment returns under simple vs compound interest. Key calculations include compound interest growing a $1000 deposit to $1790 over 10 years at 6% vs $2000 at 10% simple interest, and compound interest growing a $100 deposit to $148 over 10 years at 4% vs $150 at 5% simple interest.

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    7.1 and 2 Answer Key

    Uploaded by

    sama nassar
    25 views3 pages
    This document contains multiple examples of calculating compound and simple interest rates over time, real GDP per capita with different growth rates, calculating real GDP from employment rates and average productivity, and comparing investment returns under simple vs compound interest. Key calculations include compound interest growing a $1000 deposit to $1790 over 10 years at 6% vs $2000 at 10% simple interest, and compound interest growing a $100 deposit to $148 over 10 years at 4% vs $150 at 5% simple interest.

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    7.12 AK

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    This document contains multiple examples of calculating compound and simple interest rates over time, real GDP per capita with different growth rates, calculating real GDP from employment rates and average productivity, and comparing investment returns under simple vs compound interest. Key calculations include compound interest growing a $1000 deposit to $1790 over 10 years at 6% vs $2000 at 10% simple interest, and compound interest growing a $100 deposit to $148 over 10 years at 4% vs $150 at 5% simple interest.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    25 views3 pages

    7.1 and 2 Answer Key

    Uploaded by

    sama nassar
    This document contains multiple examples of calculating compound and simple interest rates over time, real GDP per capita with different growth rates, calculating real GDP from employment rates and average productivity, and comparing investment returns under simple vs compound interest. Key calculations include compound interest growing a $1000 deposit to $1790 over 10 years at 6% vs $2000 at 10% simple interest, and compound interest growing a $100 deposit to $148 over 10 years at 4% vs $150 at 5% simple interest.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    7.

    1 and 2 answer key:


    a. Bank C promises to pay a compound annual interest of 6%, while bank S pays a 10% simple
    annual interest rates on deposits if you deposit. If you deposited $1000 in each bank after 10
    years your deposit in bank C equals. while your deposit in bank S equals .

    Bank C: 1000(1+0.06) ^10 = $1790


    BANK S: 1000 X 0.10 =100$ so, (1000+(100X10)) =$2000

    1790, 2000

    b. If you left 2600 on deposit with a bank promising to pay you a 5 percent compound annual rate
    of interests, then after 50 years your deposit would be worth approximately how much?

    2500(1+0.05) ^50= $28,668

    c. If real GDP per person equal to $2000 in 1900 and grew at a 1 percent annual rate, what would
    be the value of real GDP per person 100 years later?

    2000(1+0.01)^100 = $5410

    d. Real GDP per person in both Alpha and Omega is equal to $2000 over the next 100 years real
    GDP per person grows at a 1.5% annual rate in Alpha and at a 2.5% annual rate in Omega.
    After 100 years, real GDP per person in Alpha is. smaller than GDP per person in Omega.
    Alpha: 2000(1+0.015)^100 = $8864
    Omega: 2000(1+0.025)^100 = $23,627
    23,627-8864= $14,763

    e. In symbolic terms where Y equals real GDP, POP equals total population, and N equal the
    number of employed workers, Y/POP must equal

    Y/POP=real GDP
    Y/N=average labor productivity
    N/POP= % employed

    Y/POP=Y/N X N/POP

    f. If 75% percent of the population in a country is employed and average labor productivity
    equals $50,000, then real GDP equals?

    GDP= % employed x average productivity


    GDP= 0.75 x 50,000
    GDP= $37,5000

    g. If real GDP per person in a country equals $120,000 and 70% of the population is
    employed, then average labor productivity equals?

    GDP=$120,000
    % employed= 0.70

    Avg Labor productivity= 120,000/0.70


    Avg Labor productivity= $171,428

    h. The population of omega totals one million, 30% of whom are employed. Average
    output per workers in Omega is $30,000. Real GDP per person in Omega totals?

    Real GDP= % employed x average productivity


    Real GDP= 30,000 x 0.30
    =$9000

     Suppose labor productivity in the United States was $100,000 per worker in 2015.
    Calculate the value of labor productivity in 2035 (20 years later) if:

    a. Productivity continues to grow by 3.1 percent per year. b. Productivity grows by 1.4 percent
    per year.

    c. How much larger would labor productivity per worker be in 2035 with the higher growth rate
    as compared to the lower growth rate?

    a. Labor productivity = 100,000(1+0.031) ^20 = $184,150


    b. Labor productivity = 100,000(1+0.014) ^20 = $132,056
    c. 184,150 -132,056 = $52,094

     Consider the table below containing data for Germany and Japan on the ratio of employment to
    population and average labor productivity for the years 1980 and 2010.

    1. Calculate the average labor productivity for the years 1980 and 2010 for both Germany and
    Japan.

    average labor productivity= real GDP / percentage employed


    germany: 1980: $14,114 / 0.33 =$42,769. 2010: $20,661 / 0.52 =$39,732. 

    Japan: 1980: $13,428 / 0.48 =$27,975 2010: $21,935 / 0.49 =$44,765  

    2.  What did you notice about the change in average labor productivity for Germany and Japan.

    Germany goes through a decrease In Average labor productivity meaning the increase in its GDP
    must be a result pf an increase in the percentage of people employed, while Japan experiences a
    increase in labor productivity thus an increase in its GDP per person.

     If you have a choice between depositing your $100 into an account that earns 5% simple
    interest for 10 years, or one that earns 4% compound interest for 10 years, which would you
    choose?

    a. After 10 years, your deposit in the 5% account would be worth _____?

    b. After 10 years, your deposit in the 4% account would be worth $ _____?

    c. Which account should you choose?

    a. $100 deposited for 10 years at 5% simple interest would be worth 100 + (10 × 5) = $150.
    b. $100 deposited for 10 years at 4% compound interest would be worth 100 (1.04) 10 = $148.02, or $148.

    c. So the account with the simple interest yields a higher return during the first 10 years.

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