Multiple Choice
To help encourage economic growth, a country can:
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1. Introduction to Macroeconomics
Introduction to Economics
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A country will roughly double its GDP in twenty years if its annual growth rate is approximately:
A
10%
B
7%
C
5%
D
3.5%
Verified step by step guidance1
Understand the rule of 70, which is a simple way to estimate the number of years it takes for a quantity to double given a constant growth rate. The formula is: \(\text{Doubling Time} \approx \frac{70}{\text{Growth Rate (in %)}}\).
Set the doubling time to 20 years because the problem states the GDP doubles in twenty years.
Use the formula to find the growth rate: rearrange it to \(\text{Growth Rate} \approx \frac{70}{\text{Doubling Time}}\).
Substitute the doubling time of 20 years into the formula: \(\text{Growth Rate} \approx \frac{70}{20}\).
Calculate the growth rate from the above expression to find the approximate annual growth rate needed to double GDP in twenty years.
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