Question

Suppose South Korea has a real GDP per capita of $28,000, while Norway has a real GDP per capita of $56,000. If real GDP per capita in South Korea grows at a 7% annual rate, and real GDP per capita in Norway grows at a 3.5% annual rate, how long will it take for real GDP per capita in the two nations to converge

Answer 1

We can use the rule of 70 to estimate the time it will take for real GDP per capita in South Korea and Norway to converge. The rule of 70 states that the approximate number of years it takes for a variable to double is equal to 70 divided by the annual growth rate of the variable.

For South Korea:

70 / 7 = 10

So it will take approximately 10 years for real GDP per capita in South Korea to double.

For Norway:

70 / 3.5 = 20

So it will take approximately 20 years for real GDP per capita in Norway to double.

To find out how long it will take for real GDP per capita in the two nations to converge, we need to find the number of years it will take for South Korea's real GDP per capita to reach the same level as Norway's real GDP per capita:

56,000 / 28,000 = 2

So Norway's real GDP per capita is currently twice as large as South Korea's real GDP per capita.

If South Korea's real GDP per capita grows at a rate of 7% per year, it will double in 10 years:

28,000 * 2 = 56,000

So in 10 years, South Korea's real GDP per capita will be the same as Norway's current real GDP per capita.

Therefore, it will take approximately 10 years for real GDP per capita in South Korea and Norway to converge.