Handout 3a - Handout 3a Importance of Growth 1. A Preview...

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Handout 3a – Importance of Growth Spring 2007 Page 1 of 4 1. A Preview of the Importance of Long-Run Growth a. Growth in U.S. real gross domestic product per person under 3 Different Scenarios Year 2.5% growth rate 2.5% growth rate + 10,000 increase in 06 3.0% growth rate 2005 $40,000 $40,000 $40,000 2006 41,000 50,000 41,200 2007 42,025 51,250 42,436 2008 43,076 52,531 43,709 2009 44,153 53,845 45,020 2010 45,256 55,191 46,371 2011 46,388 56,570 47,762 2012 47,547 57,985 49,195 2013 48,736 59,434 50,671 2014 49,955 60,920 52,191 2015 51,203 62,443 53,757 2025 65,545 79,933 72,244 2050 121,516 148,190 151,264 2075 225,284 274,737 316,713 2100 417,664 509,347 663,126 b. A small change in a growth rate can make a large difference in economic well-being! c. Economists and policymakers will improve living standards much more if they focus on raising the long-run growth rate (third column) as opposed to going after short-run gains in output (second column). d. In the words of Nobel Laureate Robert E. Lucas, “The consequences for human welfare involved in questions like (long-run growth) are simply staggering. Once one starts to think about them, it is hard to think about anything else.”
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Handout 3a – Importance of Growth Spring 2007 Page 2 of 4 2. Theory of Compound Interest a. A one-year investment (1
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This note was uploaded on 04/18/2008 for the course ECON 100 taught by Professor Kasilwal during the Spring '07 term at CSU Long Beach.

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Handout 3a - Handout 3a Importance of Growth 1. A Preview...

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