The median household income in Louisiana is approximately $52,000 per year, while the median household income in Massachusetts is about $79,000. However, suppose the growth rate of per capita real GDP in Louisiana is higher than in Massachusetts (3% versus 2%).
a. From the perspective of trying to maximize your income per capita, which state will have higher increases in income over the next few years?
1. Massachusetts, because income is already higher.
2. Louisiana, because the lower income means the cost of living is less.
3. Louisiana, because the growth rate is higher.
4. Massachusetts, because incomes are rising slower.
b. From the perspective of trying to maximize your income per capita, which state will have higher increases in income in the long run?
1. Massachusetts, because the growth rate is lower, so the cost of living is lower.
2. Louisiana, because the cost of living is lower.
3. Massachusetts, because incomes are higher now.
4. Louisiana, because the higher growth rate will lead to higher incomes in the long run.