You have the following information on 3 countries: Soccerland, Handeggland, and Neverland.
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How long will it take until Soccerland’s
GDP increases by 75%? -
How long will it take until Soccerland and Handeggland have the same
GDP?
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Soccerland’s population is not happy that, eventually, Handeggland is
going to have higher GDP than their country. They feel that they are a much better country, so they are going to work harder to ensure that Handeggland will never catch up with Soccerland. If Soccerland’s new growth rate is constant every year, what is the minimum growth rate that ensures that Soccerland will always have a higher GDP than Handeggland?
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Neverland’s ambition is to host the World Cup. At the beginning of 2013, its GDP was 2,000 and it was growing at 10% a year. Moreover, it will keep this pace until it hosts the World Cup. In order to host such a big event, Neverland’s GDP must be at least 6,000. After the moment it reaches that GDP level, it will host the World Cup at the beginning of the next year available for the event (remember that the World Cup takes place every four years, in the years: 2014, 2018, 2022, etc.) During the year that Neverland hosts the World Cup, their GDP will grow at 75%. Then, everything returns to normal, and their GDP will keep growing at 10% a year forever onwards.
1. When will Neverland’s GDP reach 20,000?
2. Suppose the Federation no longer requires Neverland to have a minimum GDP of 6,000 in order to host the World Cup, and instead it lets Neverland host the World Cup in 2014. How does your answer compare to part i), i.e., would Neverland be able to attain a GDP of 20,000 earlier, later, or at the same time as in part i)?
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