If a Rich Country Grows at a Faster Rate Than

question 86

Multiple Choice

If a rich country grows at a faster rate than a poor one, then

• A) the gap in their standard of living will widen over time.
• B) the gap in their standard of living will close over time.
• C) the difference in their living standards will not change over time.
• D) whether or not the living standards gap widens or closes over time depends on the absolute size of the relative growth rates.

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Definitions:

Annually Compounded

A compound interest calculation where the interest is added to the principal at the end of each year.

Nominal Rate

The stated interest rate of a bond or loan, without accounting for compounding or inflation.

Mortgage Loan

A loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty.

Compounded Monthly

A method where the interest is calculated on a monthly basis and added to the principal sum, allowing the interest to grow over time through compounding.