Thursday, 23 April 2009

The simple compounding formula behind the Chancellor's forecast rate of growth

Further to my post on why 3.5% was selected as the growth rate in the UK budget forecast it is interesting to do some simple compounding arithmetic.

Chancellor Darling mentioned, in interviews today, that his expectation is that the world economy will double in the next 20 years - just how he came up with that number was not explained.

However if you quickly run the following on your calculator or in Excel - 1.035^20 - it comes out as close to the desired 2 or doubling as you could hope for.

Probably just a coincidence.

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