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Chapter 8: Q1. (page 173)

If real GDP grows at 7 percent per year, then real GDP will double in approximately ________ years.

a. 70

b. 14

c. 10

d. 7

Short Answer

Expert verified

Option (c) is correct. The real GDP will double in approximately 10 years.

Step by step solution

01

Step 1. Explaining the concept “rule of 70” to determine the required number of years for an economy to double its size

The economists use the 鈥渞ule of 70鈥� to evaluate the approximate number of years an economy will take to double its size. The mathematical expression under the rule of 70 is given below:Approximateno.ofyrsrequiredtodoubletherealGDP=70Annualpercentagerateofgrowth

02

Step 2. Calculating annual growth rates

The required annual growth rate for a country to double its output can be calculated using the 鈥渞ule of 70鈥� formula.

Annual percentage rate of growth = 70/Approximate number of years required to double the GDP

The required annual percentage growth for a country to double its output in 7 years is:

Annualpercentagerateofgrowth=707=10percent

The required annual growth rate is 10 percent. Hence, option (c) is correct.

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Most popular questions from this chapter

True or False: If false, explain why.

a. Technological advance, which to date has played a relatively small role in U.S. economic growth, is destined to play a more important role in the future.

b. Many public capital goods are complementary to private capital goods.

c. immigration has slowed economic growth in the United States.

What is growth accounting? To what extent have increases in U.S. real GDP resulted from more labor inputs? From greater labor productivity? Rearrange the following contributors to the growth of productivity in order of their quantitative importance: economies of scale, quantity of capital per worker, improved resource allocation, education and training, and technological advance.

Suppose that just by doubling the amount of output that it produces each year, a firm鈥檚 per-unit production costs fall by 30 percent. This result is an example of:

a. economies of scale.

b. improved resource allocation.

c. technological advance.

d. the demand factor.

True or False. Countries that currently have a low real GDP per capita are destined to always have lower living standards than countries that currently have a high real GDP per capita.

What are the four supply factors of economic growth? What is the demand factor? What is the efficiency factor? Illustrate these factors in terms of the production possibilities curve.
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