Practice question · Multiple choice
Two economies grow at 2% and 3.5%. Over a century, how different are they?
Hints
- Apply the rule of 70 to each rate. How many doublings does each get in a century?
- Growth is multiplicative, not additive. What does that do over 100 periods?
Show the answer
D. Enormously; compounding turns 1.5 points into a fourfold gap
Why
Doubling every 35 years against every 20 gives roughly three doublings against five, a factor of four. Lucas said that once you start thinking about growth it is hard to think about anything else, and this arithmetic is why.
Practise Economic Growth
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