This workbook uses Maddison data on the Real GDP per person for many countries over long periods of time to illustrate concepts and issues about economic growth.

Economic growth is defined as the percentage change in GDP per person from one year to the next.

Using GDP per person to measure economic performance is not perfect, but it is commonly accepted.

The data in this workbook illustrate two key facts about economic growth:

1) There is tremendous variation in the long run economic performance of different countries.

2) Economies can speed up and slow down.

Put another way, economic growth is neither automatic nor guaranteed.

In order to analyze the data, we need to explain a few basic ideas.

1) The rate of growth (or growth rate) of a variable is its percentage change from one time period to the next.

Example: x increases from 2 to 2.1 from one year to the next.

The percentage change is (2.1-2)/2 = 5% per year.

This is the rate of growth.

2) The Rule of 70 tells you approximately how long it will take for a value to double, given a constant growth rate.

Time to Double = 70/Growth Rate

At 10% per year, it will take 70/10 = 7 years to double.

At 5% per year, it will take 70/5 = 14 years to double.

3) If we compute a difference in growth rates, we get percentage point differences.

The difference between a 10% and 3% growth rate is 7 percentage points (% pts).

In finance, a "point" is a percentage point and a "basis point" is 1/100th of a point. 100 basis points equals one percentage point.

4) Seemingly small changes in growth rates can have big effects over long periods of time.

Suppose a country grows at 2% per year instead of 1% per year.

Is this a big difference? After all, 1% pt doesn't seem like much.

In fact, over time, this 1% pt will be HUGE.

Instead of doubling in 35 years with the 2% per year growth rate, it will take 70 years to double.

A mutual fund charging a "tiny" 1.25% fee is actually extremely expensive.