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Unformatted text preview: • Hypothetical GDP Paths 7 8 9 10 11 12 1870 1890 1910 1930 1950 1970 1990 2010 year log (GDP per capita) Growth 2% Growth 1% Growth 3% Doubling Income Every X years • If g is the growth rate, income doubles every 72/g years – If g=1.2, income doubles every 72/1.2= 60 years – If g=2.2, income doubles every 72/2.2= 32.7 years – If g=3.2, income doubles every 72/3.2= 22 years Doubling Income • Old Chinese philosopher – Put one penny in first square of chessboard and double it for every square. At the end we have 92,233,720,368,547,800 dollars (92 million billions) (=2^63) – If double it only for white squares, then we have “only” 21,474,836 dollars (21 million) (=2^31) Lesson: doubling income every decade, or every two decades or every six decades has ENORMOUS CONSEQUENCES FOR INCOME IN THE LONG RUN. Hence GROWTH MATTERS A LOT...
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This note was uploaded on 09/28/2010 for the course ECON ECON W3213 taught by Professor Jonsteinsson during the Spring '10 term at Columbia.
 Spring '10
 JONSTEINSSON

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