Question

Explain why an economy growing at annual rate of 5% would be approximately four times larger than another economy growing at just 2.5% after 56 years base on the rule of 70

Answer 1

Ans. According to rule of 70,

The number of years in which the amounts double is = 70/growth rate

At growth rate of 5%,

The number of years to double is = 70/5 = 14 years

and at growth rate of 2.5%,

The number of years to double is = 70/2.5 = 28 years

Thus, at growth rate of 5%, the amount will be 16 times after 56 years and at 2.5% the amount will be 4 times only.

Thus, the amount will grow 4 times larger at the interest rate of 5% than at the 2.5%.

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