Respuesta :
The rule of 70 is a technique used to forecast how many years would take to a variable to double its value. It consists on dividing number 70 by the growth rate of the variable of interest, which in this case is the GDP of countries A and B.
According to the rule of 70, let's compute how long will take for the GDP of each country to double:
- Country A: 70/2.8= 25 years
- Country B: 70/1.4= 50 years
As the growth rates are constant, it is possible to compute the exact value of the GDP of each country in 100 years time using the number of years for output duplication.
- Country A duplicates its growth every 25 years. Hence, it will happen 4 times in 100 years. In year 25, the output will be $100,000. In year 50, it will duplicate again and reach $200,000. The third duplicate will take place in year 75 and GDP will sum $400,000. Finally, in year 100 it will duplicate one last time and country A will end up the century with a GDP per capita of $800,000.
- Country B duplicates its growth every 50 years. Therefore, it will happen twice in 100 years. In year 50, the output will be $100,000. In year 100, the last duplicate will take place, and country B will end up with a GDP per capita of $200,000.
Difference between the GDP per capita for the two countries will be $600,000 by using the rule of 70 which calculate how much time will country take to double its GDP.
What is GDP and its valuation?
Gross domestic product (GDP) is the total sum of goods and service produced within the country over the specific period the time.
Rule 70 is method to calculate the number of years for a variable by using its growth rate.
Formula to calculate:
[tex]\text{Rule 70} =\dfrac{70}{\text{Growth rate} }[/tex]
for Country A 70/2.8 = 25years
for Country B 70/1.4 = 50 years
Country A double his GDP in 25 years as its growth rate is constant.
In initial stage GDP per capita of country A is $50,000
After 25 years later it become double of it $100,000
After 50 years ...................................................... $200,000
After 75 years ....................................................... $400,000
After 100 years ...................................................... $800,000
GDP of country A after 100 years it will be $800,000
Country B double its GDP in every 50years
In initial stage GDP per capita of country B is $50,000
After 50 years later it become double of it is $100,000
After 100 years ...................................................... $200,000
[tex]\begin{aligned}\text{Difference}&=\text{GDP Country A}-\text{GDP Country B}\\ &=\$800,000-\$200,000\\ & =\$600,000\end{aligned}[/tex]
Therefore difference between two counties after 100 years will be $600,000
Learn more about GDP here:
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