Explaining the Link Between Wealth and Financial Systems
An economist observes that countries with higher per capita income generally have larger and more complex financial systems. Explain the two primary ways this relationship is typically measured and provide a brief rationale for why this positive correlation exists.
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An economist is comparing two hypothetical countries and has gathered the following data:
- Country X: Has a GDP per capita of $60,000. The total value of all financial liabilities in the country is equal to 200% of its GDP. 98% of its adult population uses formal financial services.
- Country Y: Has a GDP per capita of $4,000. The total value of all financial liabilities in the country is equal to 35% of its GDP. 25% of its adult population uses formal financial services.
Based on this information, which statement best analyzes the relationship between national wealth and financial systems in these two countries?
A decrease in the total value of a country's financial liabilities relative to its national income is a definitive indicator that the country's per capita wealth is also declining.
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Explaining the Link Between Wealth and Financial Systems