Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 21: Problem 2

What is the rule of \(70 ?\) If real GDP per capita grows at a rate of 5 percent per year, how many years will it take to double?

Short Answer

Expert verified
It will take 1,400 years for real GDP per capita to double if it grows at a rate of 5% per year according to the rule of 70.

Step by step solution

01

Understand the Rule of 70

The 'Rule of 70' is used to estimate the number of years it takes for a variable to double, by dividing 70 by the rate of growth. Given the growth rate here is 5% per year, it is important to note that in the formula, the growth rate should be expressed in its decimal format i.e.5% = 0.05.
02

Apply the Rule of 70

Apply the Rule of 70 formula to calculate the number of years it will take for the real GDP per capita to double at a growth rate of 5% per year. So, it will be: \[ Years = \frac{70}{Growth\ Rate} = \frac{70}{0.05} \]
03

Perform the Calculation

Calculate the right side of the equation \[ Years = \frac{70}{0.05} = 1400 \]. Therefore, it will take 1,400 years for the real GDP per capita to double if it grows at a rate of 5% per year according to the rule of 70.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

An article in the Economist noted that "for 60 years, from 1770 to 1830 , growth in British wages, adjusted for inflation, was imperceptible because productivity growth was restricted to a few industries." Not until the late nineteenth century, when productivity "gains had spread across the whole economy," did a sustained increase in real wages begin. Why would you expect there to be a close relationship between productivity gains and increases in real wages?

The federal government in the United States has been running large budget deficits. Suppose that Congress and the president take actions that turn the budget deficits into budget surpluses. a. Use a market for loanable funds graph to illustrate the effect of the federal budget surpluses. What happens to the equilibrium real interest rate and the quantity of loanable funds? What happens to the level of saving and investment? b. Now suppose that households believe that surpluses will result in Congress and the president cutting taxes in the near future in order to move from budget surpluses to balanced budgets. As a result, households increase their consumption spending in anticipation of paying lower taxes. Briefly explain how your analysis in part (a) will be affected.

What are loanable funds? Why do businesses demand loanable funds? Why do households supply loanable funds?

What are the names of the following events that occur during a business cycle? a. The high point of economic activity b. The low point of economic activity c. The period between the high point of economic activity and the following low point d. The period between the low point of economic activity and the following high point

Firms care about their after-tax rate of return on investment projects. In the market for loanable funds, draw a graph and explain the effect of an increase in taxes on business profits. (For simplicity, assume no change in the federal budget deficit or budget surplus.) What happens to the equilibrium real interest rate and the quantity of loanable funds? What will be the effect on the level of investment by firms and the economy's capital stock in the future?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free