20-Economic Growth

  1. What would you rather have $50,000 today or in 1925
    1. Increased inflation
      1. Relatively rich in 1925
      2. Middle class today
    2. Increased technologies
      1. Travel, electronics, medicine among many
      2. If not 1925, where would the class v. technology ratio pay off
  2. Economic growth compounds overtime
    1. FV=PV(1+GRt)[GR=Growth Rate]
    2. Example: Take the present value of GDP(GR)
      1. 3% normal GR 5% good 8%great(think Japan late 70’s, U.S. Post depression, China mid 2000’s
      2. GDP works like compound interest
        1. GDP ratios between Rich countries and poor ones
          1. 1870- 6:1
          2. 1960- 38:1
        2. Smaller countries mimic motions of past generations, thus no growth
        3. Catch-up growth occurs when a newly industrializing country benefits from known techs
          1. If a country falls behind it can take decades to get back up
          2. No economy is prospering to the peril of another.
        4. The sooner the better with newly industrializing countries(compound interest)
        5. Sources of growth (per/person output) productivity growth
          1. Physical capital .25
          2. Human capital .25
          3. Technology .5
        6. A higher GDP solves most problems(to lower costs, increase sales)



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