***Dear Students,

You may find this note either in Bahasa Malaysia or English.

“The power of compounding”

Timbul beberapa persoalan yang biasanya diajukan kepada ahli ekonomi…..

• Berapa cepatkah ekonomi NSM perlu “bertumbuh” untuk mengejar NM di abad

yang akan datang?

• Jika ekonomi China terus bertumbuh pada kadar 10% setahun, berapa lamakah
Pendapatan Perkapita nya dapat menyamai Pendapatan Perkapita Am. Sykt?

Persoalan ini dapat dijawab dengan membuat pengiraan menggunakan rumus

berkonsepkan “the power of compounding”.

Ini rumus asal untuk power of compounding: YT = YT=0 ( 1 + g)T

Contoh 1:

Katakan sebuah ekonomi yang ringkas Yp0 = $1000.00 bertumbuh pada kadar 10% (g
) setahun (T), berapakah Yp nya selepas 10 tahun (Yp10)?

Dalam kata lain: 10% bagi 10 tahun, maka Yp naik daripada $1000 kepada?

Y10 = 1000 (1+ 0.10)10

= $2594 iaitu ∆Yp = 160%

Contoh 2:

Yp0 = $2000.00

g = 10%

T = 20

Yp20 = ?
 Y20 = 2000 (1+ 0.10)20

= 2000 ( 1.10)20

= 2000 (6.727499)

= $13,454.9

Jika kadar pertumbuhan (g) sama; berapa tahun Yp dapat digandakan?

Dari rumus asal akan jadi:

2 = (1 + g)T

Contoh 3:

Berapa lama (T) sesebuah negara dapat menggandakan Yp nya jika g = 10%?

2 = (1 + g)T

2 = (1.1)T

ln 2 = T ln (1.1)

0.69314 = T (0.09531)

T = 7.2 tahun @ 7 tahun.

Contoh 4:

Cari tempoh sesebuah negara dapat gandakan pendapatan perkapitanya jika

bertumbuh secara purata 5% setahun?

Jawapan: 14.2067 @ 14 tahun.

Kesimpulannya: Jika 2 negara berbeza bermula pada tahap Yp yang SAMA, dengan
mencapai kadar pertumbuhan yang berbeza (g) setiap tahun, Y p nya akan berada
pada tahap yang berbeza. Ini yang berlaku kepada Malaysia dan Korea pada suatu
masa lalu.

Korea adalah negara yang jauh lebih mundur dari Malaysia dan pada tahun 1980
ekonomi negaranya sama dengan kita.

Pada tahun 1950, Korea adalah antara negara termiskin di dunia. Akibat perang
dengan Jepun di mana ketika itu Korea hanya bergantung kepada pertanian sahaja.
Sekitar tahun 70-an, Malaysia jauh lebih maju daripada Korea tapi kini Korea sudah
menjadi negara maju dengan penguasaan teknologinya tinggi.

Kita lihat pendapatan perkapita Korea & Malaysia;

a) Korea (1980) - $1845.66
b) Malaysia (1980) - $1804.12

Maksudnya di sini, pendapatan Malaysia dan Korea lebih kurang sama pada tahun
1980. Apa yang berlaku selepas 26 tahun;

a) Korea (2006) - $18,674.44

b) Malaysia (2006) - $5,781, kita ketinggalan hampir 223% dengan Korea.
Finding a target growth rate:

Contoh 5:

Sebuah negara Yp nya adalah 29 000, telah menggandakan nya dalam tempoh 10
tahun; berapakah kadar pertumbuhan yang telah dialaminya (g)?

10
2 = (1 + g)
1/10
2 =1+g

1.0717 = 1 + g

g = 0.0717 x 100

g = 7.17

maka perlukan 7.17% untuk gandakan Yp nya dalam tempoh 10 tahun.

SEKIAN
 “The power of compounding”

Some issues are usually raised by economists ... ..

• How fast does an economy of developing country need to "grow" to reach the level
of a developed country in the coming century?

• If China's economy continues to grow at a rate of 10% a year, how long will it take
to reach at the same level of Income percapita of United States?

These problems can be answered by making calculations using the concept of "the power
of compounding".

This is the original formula for the power of compounding

YT = YT=0 ( 1 + g)T

Example 1:

Let's say a simple economy Yp0 = $1000.00 grows at 10% (g) a year (T), what is its Y p
after 10 years (Yp10)?

In other words: 10% growth for 10 years, the Yp will increase from $ 1000 to?

Y10 = 1000 (1+ 0.10)10

= $2594 iaitu ∆Yp = 160%

 Example 2:

Yp0 = $2000.00

g = 10%

T = 20

Yp20 = ?

Y20 = 2000 (1+ 0.10)20

= 2000 ( 1.10)20

= 2000 (6.727499)

= $13,454.9

If growth rate (g) is still same; how many years the Income percapita will be multiplied?

Using the original formula it will be:

2 = (1 + g)T

Example 3:

How long (T) a country takes to double its Yp if g = 10%?

2 = (1 + g)T

2 = (1.1)T

ln 2 = T ln (1.1)
 0.69314 = T (0.09531)

T = 7.2 years @ 7 years.

Example 4:

Find the period of years for a country to double its income per capita if average annual
growth of this country is 5%.

Answer: 14.2067 @ 14 years.

In conclusion: If two different countries start at the SAME Yp level….. by achieving

different growth rates (g) each year, Yp will be reach at different levels.

This is the scenario of what happened to Malaysia and Korea in the past.

Korea was an underdeveloped country compared to Malaysia. However, in 1980, the

country's economy was at the same pace as ours.

In 1950, Korea was one of the poorest countries in the world due to war with Japan.
During that time, Korea was only dependent on agriculture sector alone. Around the
1970s, Malaysia was far more advanced than Korea. Currently, the reverse situation
occur, whereby Korea has become a developed nation with high technology.

Previously, we see Korean & Malaysian per capita income;

a) Korea (1980) - $ 1845.66

b) Malaysia (1980) - $ 1804.12

This means that Malaysia and Korea's earnings are about the same in 1980.

What happen to both economy after 26 years?

a) Korea (2006) - $ 18,674.44

b) Malaysia (2006) - $ 5,781, we are left behind with almost 223% with Korea.
Finding a target growth rate:

Example 5:

A country with Yp is 29 000, has successfully doubled it within 10 years; what is the
growth rate it has experienced (g)?

2 = (1 + g) 10

2 1/10 = 1 + g

1.0717 = 1 + g

g = 0.0717 x 100

g = 7.17

This particular country need 7.17% to double its Yp=29 000 within 10 years.

THE END