Explain why even small changes in the rate of economic growth are significant. Use the “rule of 70” to demonstrate the point
Please provide the best answer for the statement.
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.
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A tax is progressive if it raises a greater fraction of total tax revenue every year.
Answer the following statement true (T) or false (F)
Which of the following explains why banks try to keep their holdings of excess reserves low?
A. To escape Fed penalties. B. To please bank examiners. C. To keep the money multiplier low. D. To maximize profits.
Which of the following people are liquidity providers?
A. Stock broker B. Real estate agent C. Used car salesman D. All of these are considered liquidity providers.
At the current interest rate, suppose the supply of money is less than the demand for money. Given this information, we know that
A) the price of bonds will tend increase. B) the price of bonds will tend to fall. C) production equals demand. D) the goods market is also in equilibrium. E) the supply of bonds also equals the demand for bonds.