Section 8 - Economic Growth

Exponential Growth

GDP -

X - dollars
r - % interest

X*(1+r) where interest is eventuall X*(1+r)^t (years)

Rule of 72 - Divide the growth rate into 72.  The answer gives you how many years to Double.

Continuous Compounding
If you show growth in infinitesimally small  time frames, the growth rate is:
        =  e^(rt)

Simple Growth Model

Economy
-  Workers
-  Coconuts
-  Machines
-  Machines wear out

Solow Growth Model

Bob Solow - Economist w/ MIT

Add A(t) which is innnovation

O(t) = A(t)K(t)^b*L(t)^*(1-b)

This will allow productivity to double

Will China continue to Grow?

The required Innovation to maintain 8-9% growth rates have never been seen.

So Chinas growth will be driven to show innovation and will likely only see 1-5%.

Why do some countries not Grow?

Botswana did well, while Zimbabwe didn't do so grow

- Strong government control is required to protect equpiment, etc.
- Too strong a central government (1-2 people), they will extract resources, which will reduce investment and lower incentive to improve.

Growth requires some Creative Destruction - old equipment isn't required as it is replaced by new.

Fertility
- Can't apply to trees or people.
- We can apply it to our own GDP.  If we don't innovate, we will slow our own growth.