(a) Suppose that as a professor in India my salary is rupees (Rs) 100,000 per year and that I get a raise of Rs 1,000 per year. Suppose that a schoolteacher who earns Rs 50,000 per year also gets the same raise of Rs 1,000. Convince yourself that the growth rates of our incomes are indeed different. Thus, two countries growing at the same rate may well have a widening absolute income gap over time.

(b) We saw that even growth rates of per capita incomes that sound low, such as 1.5% per year, are a relatively modern phenomenon that has occurred, by and large, in the last century or so. There is an interesting way to see this that also teaches us about the power of exponential growth. Suppose that the average income of a person in a developed country is $20,000 per year (this is a bit on the high side, but no matter). Now go back in time by scaling this number down by 1.5% per year. What would the average income have been 200 years ago?