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Stambovsky

In: English and Literature

Submitted By xiaoxiao1
Words 694
Pages 3
II. THE LONG RUN
Chapter 3:
Overview of Economic Growth

3.1 Introduction
• In this chapter, we learn:
– Some facts related to economic growth that later chapters will seek to explain.
– Some tools used to study economic growth, including how to calculate growth rates. 3.2 Growth over the 

Very Long Run
• Sustained increases in standards of living are a recent phenomenon.
• As a result per capita GDP differs remarkably across countries.

• The Great Divergence: the period from
1700 to today
• Before 1700
– Per capita GDP across countries differed only by a factor of two or three.

• Today
– Fanning out of per capita GDP
– Cross-country it differs by a factor of 50!

• From 1870 to 2012, US per capita real
GDP rose by a factor of 17.

3.3 Modern Economic Growth

The Definition of Economic Growth
• We define the rate of economic growth between two periods as the percent change in per capita
GDP (in real terms) between those periods.

• Percentage change in GDP between period t and and t + 1

“new”
GPD

“old”
GPD

• Say per capita real GDP was $20,000 in year 1990.
We know it increased by 10% (10/100 = 0.1) between 1990 and 2000. What is the 2000 value?

• Applying the growth rate to find next period’s value:

growth rate • Suppose y grows 2% each year.
– NB: That is an accumulated 49% over 20 years.

• The constant growth rule: time period

variable value in period t

initial variable value in period
0

constant growth rate

Example

• The world’s population is now 7.24 billion people (July 2014)
• Suppose population grows at a constant rate of 1% per year
• What do you project the world’s population to be in 10 years?
– 8 billion

• And in 30 years?

The Rule of 70 and the Ratio Scale

• The Rule of 70
– If y grows at a rate of g percent...

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Case Brief

...Stambovsky v. Ackley, 169 A.D.2d 254 (N.Y. App. Div. 1991) Procedural History: Appeal is brought by Plaintiff from the Supreme Court, New York County, after the Supreme Court dismissed the plaintiff’s action against the defendants for rescission and damages related to the purchase of a house. Plaintiff/Appellant asks the Court for an entry of judgment for rescission and damages. Issue: Under New York law, may a homebuyer rescind the purchase contract when an undisclosed condition impairs the value of the property? Holding: The Court determined that a homebuyer may rescind the purchase contract when an undisclosed condition impairs the value of the property. Facts: Plaintiff contracted to buy a house from defendant seller. Plaintiff then discovered that the house was publicly believed to be haunted by ghosts. The seller had perpetuated this belief by publishing an article in Reader’s Digest (1977) and the local newspaper (1982). The seller also included the house in a walking tour and again described it as “haunted” in the local newspaper (1989). The seller did not disclose this information to the plaintiff. Rationale: In real estate transactions, New York adheres to the doctrine of caveat emptor, meaning “let the buyer beware.” Homes are sold “as is” and it is the buyer’s duty to take appropriate measures to properly inspect a property before purchasing it....

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