How is it that a 1% difference in growth makes such a big difference over time?
Compound interest means small differences in growth rates grow to be very large over time. The rule of 72 helps us figure out how long it takes a growth rate to double the original size. A growth rate of 10% doubles every 72/10 = 7.2 years. At 3%, growth doubles every 24 years. At 2%, it takes 36 years.
In other words, 100 dollars that grows at 2% over 72 years ends around 420 dollars. That’s over 300% over 72 years.
But 100 dollars that grows at 3% over 72 years ends up around 850 dollars. That’s an increase of over 750%.
What does GDP per capita mean?
GDP per capita is calculated by taking all of the economic output of the country (GDP) and dividing it by the number of people in the country. In the United States, GDP is almost 17 trillion dollars and there are over 320 million people, leading to a per capita GDP of over $51,000 “per capita.”
What drives economic growth?
Economists will tell you that economic growth can be broken up into labor force participation and productivity. Or in other words, how many more people are working and how much more efficiently they’re doing their jobs. When fewer people get jobs, economic growth slows down. Economic growth speeds up when it takes fewer people to do a job than it did before.