A4. The appendix details the important distinction between arithmetic and geometric averages in determining growth rates. Consider Exhibit 7.4.

a. Using the procedure outlined in the Appendix for geometric average growth rates (in the section titled

“Calculating Average (Compound) Growth Rates,”

see if you can reproduce the “Implied (average)

annual growth” figures given in the last column of the exhibit for the following countries: Mexico, Guatemala, South Korea, Ghana, and Rwanda.

b. Using the procedure outlined in the Appendix for finding arithmetic average growth rates, calculate the arithmetic average growth rate for the five countries.

Compare these with the rates you obtained in part (a).

Does the arithmetic average understate or overstate the actual growth rate? Explain.