How large will Canada’s GDP be in 25 years? The answer depends on what the rate of growth in GDP will be over that 25-year period. A mathematical formula we can use for this calculation is the...

How large will Canada’s GDP be in 25 years? The answer depends on what the rate of growth in    GDP will be over that 25-year period. A mathematical formula we can use for this calculation is the following:

GDP

₂₀₄₁


=

GDP

₂₀₁₆

(1 +
g)

²⁵

where GDP2041 is the level of GDP in the year 2041, GDP2016 is the level of GDP in the year 2016, and
g
is the rate of growth in GDP. Assume that GDP in 2016 is $1000 million and assume that the value of
g
is 0.035 (3.5 percent per year). What will be the value of GDP in 2041? Now suppose that the value of
g
is 0.040 (4.0 percent per year). What will be the value of GDP in 2041 given this slightly larger rate of growth? What does this result say about the importance of policies that promote even slightly faster rates of growth in GDP?