Question

In: Economics

This question is about the rule of 70! In recent decades, the real per capita GDP...

This question is about the rule of 70! In recent decades, the real per capita GDP in the fast growing countries such as China ($2444 in 1985; $13043 in 2017), India ($1032 in 1985, $6422 in 2017), South Korea ($6630 in 1985, $36265 in 2017), Singapore ($18711 in 1985, $67138 in 2017), and Taiwan ($12088 in 1985, $43211 in 2017) has risen about

		around 8 percent per year on average.
		around 2 percent per year on average.
		4 - 6 percent per year on average.
		by more than 10 percent per year on average.

Expert Solution

The rule of 70 states that:

The number of years required for doubling real per capita GDP = 70/ Annual Average Percentage growth rate.

The time period under consideration is 1985 to 2017 which is about 32 years.

For China, GDP has grown 5.3367 times ( =13043/2444)

For India, GDP has grown 6.2229 times ( =6422/1032)

For South Korea, GDP has grown 5.4698 times ( = 36265/6630)

For Singapore, GDP has grown 3.5882 times ( = 67138/18711)

For Taiwan, GDP has grown 3.5747 times ( = 43211/12088)

If we take the average for all countries, the average rate of growth is 4.83846 times.

Now let us compare the options according to the rule of 70:

A) around 8% growth rate,

No of years to double = 70/8 = 8.75 years. Hence in 32 years, GDP should be increased by about 12.73 times

B) around 2% growth rate,

No of years to doube = 70/2 = 35 years. Hence in 32 years, GDP will be still not be double the original GDP

C) 4-6 % growth rate,

No of years to double are in between = 70/4 = 17.5 and =70/6 = 11.66 Hence it will take around 14.58333 years to double. Hence for 4% growth rate we can say that 35 years required for four times and for 32 years it will be less than 4 times. This can be said about Singapore and Taiwan(3.5882 and 3.5747 times). For 5-6% growth rate we can say that it requires around 35 years to grow between 4 and 8 times so this fits for China, India and South Korea.

D) >10% growth rate.

This option is ignored as we have already found out the answer.(Option C)

Rahul Sunny answered 8 months ago

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