Explain why even small changes in the rate of economic growth are significant. Use the “rule of 70” to demonstrate the point.

What will be an ideal response?


Small changes in the rate of growth can be very meaningful, especially for a country where a fraction of a percent change in the growth rate may mean the difference between starvation and hunger.
Over a period of time small changes are cumulative in the same way that compound interest payments are cumulative on a bank account. Using the rule of 70 to estimate the time it takes to double GDP, we can see that a country whose growth rate is 5% takes 14 years to double its GDP, but a country whose growth rate is 3% may take nearly 10 years longer to double its GDP or about 23.3 years. If these countries continued to grow at their respective 5% and 3% rates, in 28 years the first country’s GDP would be quadrupled, whereas in the second country, it would take nearly 47 years to quadruple its GDP from the current year.

Economics

You might also like to view...

Use the following graph to answer the next question.If aggregate supply shifts from AS1 to AS2, then the price level will ________.

A. decrease and real domestic output will increase B. decrease and real domestic output will decrease C. increase and real domestic output will increase D. increase and real domestic output will decrease

Economics

If people expect the future exchange rate for dollars will be lower, then in the foreign exchange market the current

A) quantity demanded of dollars decreases. B) demand for dollars decreases. C) quantity demanded of dollars increases. D) demand for dollars increases. E) supply of dollars decreases.

Economics

One characteristic of a monopoly market is that the product is virtually identical to products produced by competing firms

a. True b. False Indicate whether the statement is true or false

Economics

Which of the following changes would decrease the present value of a future payment?

a. a decrease in the size of the payment b. an increase in the time until the payment is made c. an increase in the interest rate d. All of the above are correct.

Economics