Ch.19_EconomicGrowth

# Ch.19_EconomicGrowth - Ch 19 Economic Growth I Overview The...

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1 Ch. 19 Economic Growth I. Overview: The Remarkable Rise in Living Standards Real GDP per Capita 1,518 464 Ghana 5,970 548 China 34,116 835 Japan 36,358 3,899 U.K. 47,440 2,936 U.S. 2008 1870 Country

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2 Growth wasn’t always so sustained. Consider England: Greater than 2% 1890-2008 1.5 1820-1890 0.5 1785-1820 0 1700-1785 Avg. annual growth Period
3 II. Why “Small” Differences in Growth Matter A. The magic of sustained growth Recall that growth is geometric – i.e. it works like compound interest. This means that small differences in average annual growth rates lead to large differences in GDP per capita. Suppose country A and country B start with the same per capita GDP, say \$1,000. Suppose that over the next 100 years, Country A has 2% growth and Country B has 4% growth. At the end of the 100 years:

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4 A. The magic of sustained growth (continued) GDP per Capita (PPP, in \$) 1,518 5,970 2008 464 252.4 1980 Ghana China Year
5 B. A very useful formula is the “Rule of 70”: The number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth rate of the variable.

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