Question

You hear the following on your local radio station's business news: "The economy last year grew by 9%. This was the second year in a row in which the economy showed a 9% growth." This means that, in dollar terms, the economy grew more last year than the year before. Why?

Answer 1

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Answer:

The economy grew more in the last year than the previous year because at time T = 2 the interest will be more than the interest in the year before at T = 1

Since Interest = PV * R* T

Even thought R = 9% same in T =2 and T = 1, the time will be different thus differing in absolute value of growth of economy in two years.The growth in economy revenues will be more in at T = 2 in last year than the economy growth in T = 1 i.e; the year before.