Question

In analyzing the effects of difference in economic growth rate over time, explain why it is the case that small differences in annual growth rates can result in large differences in the size of economics, using the rule of 70

Answer 1

We use the rule of 70 to know the time taken by the economic growth rate to double i.e. we divide 70 by the growth rate. And, small differences can also lead to large differences because growth rate is in the denominator and small change will lead to a greater change in the number of years it takes for an economy to double that growth rate

Lets us take an example and see. For a growth rate of 2.5% it will take 70/2.5 i.e. 28 years to double

for a growth rate of 3%, it takes 23 years to double thus we can see that a difference of 0.5% can lead to a difference of 5 years which is a lot for an economy.