Economic growth is typically measured as a percentage. So how do economists account for the fact that if the percentage of growth remains constant, then the actual growth rate is accelerating? For example, assume a small country has a GDP of $10,000,000. Assume GDP grows at 10% a year. So after the first year the GDP is $11,000,000. The second year the GDP grows by another 10%. Now the GDP is $12,100,000. The third year the GDP is $13,310,000, etc. etc. So if the percentage of growth is constant, the growth in dollar terms is really accelerating. On the other hand, if the growth in dollar terms is constant, then measuring growth in percentage terms creates the misimpression that the growth rate is decreasing. I’ve asked economists this question over the years. Their answer tends to be “Oh the Fed accounts for this.” But they never explain how the fed accounts for it. I think answering this question would make a good topic for your blog.
Economic growth is typically measured as a percentage. So how do economists account for the fact that if the percentage of growth remains constant, then the actual growth rate is accelerating? For example, assume a small country has a GDP of $10,000,000. Assume GDP grows at 10% a year. So after the first year the GDP is $11,000,000. The second year the GDP grows by another 10%. Now the GDP is $12,100,000. The third year the GDP is $13,310,000, etc. etc. So if the percentage of growth is constant, the growth in dollar terms is really accelerating. On the other hand, if the growth in dollar terms is constant, then measuring growth in percentage terms creates the misimpression that the growth rate is decreasing. I’ve asked economists this question over the years. Their answer tends to be “Oh the Fed accounts for this.” But they never explain how the fed accounts for it. I think answering this question would make a good topic for your blog.
I loved the previews of Slouching on the old blog. Looking forward to it.