Why do economists pay so much attention to small changes in the rate of economic growth?

• A. Because even small changes can compound over time, leading to significant differences in living standards.
• B. Because small changes in growth rates are always caused by changes in interest rates.
• C. Because small changes in growth rates only affect government spending.
• D. Because small changes in growth rates have no impact on unemployment.

Answer: (A)

Verified step by step guidance

1. Understand that economic growth refers to the increase in a country's output of goods and services, typically measured by the growth rate of real GDP.
2. Recognize that even small changes in the growth rate can have large effects over time due to the principle of compounding, where growth builds upon previous growth.
3. Recall the formula for compound growth: \(\text{Future Value} = \text{Present Value} \times (1 + g)^t\), where \(g\) is the growth rate and \(t\) is time.
4. Analyze how a small increase in \(g\) can lead to a much larger future value after many periods, significantly improving living standards.
5. Conclude that economists focus on small changes in growth rates because these changes, when compounded, can greatly impact the economy's long-term prosperity, unlike the other options which are either incorrect or less relevant.