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Chapter 16: Problem 2

What is the level of output after four years if initial output cquals \(\$ 1,000\) and the cconomy grows at a rate of 8 percent a year?

Short Answer

Expert verified
Answer: The level of output after four years will be approximately $1,360.49.

Step by step solution

01

Insert the given values into the formula

Plug in the given values into the compound interest formula: \(A = 1000(1 + 0.08)^4\)
02

Simplify the expression within the parenthesis

Add 1 to the growth rate: \(A = 1000(1.08)^4\)
03

Raise the term within the parenthesis to the power of 4

Use a calculator or a software tool to find the value of \((1.08)^4\): \(A = 1000(1.36049)\)
04

Multiply the initial output by the growth factor

Multiply \(1000\) with \(1.36049\) to find the future output: \(A = 1360.49\) After four years, the level of output will be approximately $1,360.49.

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