Question

A mathematical approximation called the Rule of 70 tells us that the number of years it will take something that is growing to double in size is approximately equal to the number 70 divided by its percentage rate of growth. For example, if Mexico’s real GDP per person is growing at 7 percent per year, it will take about 10 years (= 70 ÷ 7) to double.

Apply the Rule of 70 to solve the following problem.

If real GDP per person in Mexico was $11,000 in 2008, while it was $44,000 per person in Canada, and if real GDP per person in Mexico grows at a rate of 2 percent per year, how long will it take Mexico’s real GDP per person to reach the level that Canada was at in 2008? (Hint: How many times would Mexico’s 2008 real GDP per person have to double in order to reach Canada's 2008 real GDP per person?)

years

Answer 1

Growth rate of real GDP per person in Mexico is 2% per year.

Time taken to make double the GDP per person of Mexico from $11000 to 22000= 70/growth rate of real GDP per person= 70/2= 35 years.

In the 35 years, the Real GDP per person of Mexico would become $22000.

Now, to make Real GDP per person of Mexico equal to Real GDP per person of Canada (in 2008), Real GDP per person of Mexico should again double to increase from $22000 to $44000. If rate of growth of real GDP per person is 2% per year, then Time taken = 70/2= 35 years.

It would take 35 years to increase the real GDP per person of Mexico from $11,000 to $22,000. It would take another 35 years to increase the real GDP per person of Mexico from $22,000 to $44,000 so that Mexico's real GDP per person reaches the level that Canada was at in 2008.

Hence, it would take a total of 70 years from 2008 for Mexico to reach the level of GDP per person that Canada was at in 2008.