Question

Real GDP per capita, growing at a constant rate over a 35-year period, has doubled at the end of that period. What must the annual growth rate of real GDP per capita be for this economy? 1% 2% 4% 15%

Answer 1

2%

Step-by-step explanation:

To get the annual growth rate of real GDP per capita, the rule of 70 is employed.

The rule of 70 refers to technique to is used to calculate the numbers of years an investment, real GDP per capita, an investment, or any other amount will take to double. The formula for the rule of 70 is given as follows:

Number of years to double = 70 ÷ Annual growth rate ............... (1)

Since number of years to double is 35 as given in the question, we then substitute for it in equation (1) and solve for annual growth rate as follows:

35 = 70 ÷ Annual growth rate

Rearranging, we have:

35 × Annual growth rate = 70

Annual growth rate = 70 ÷ 35

Annual growth rate = 2

Note that the 2 obtained above conventionally mean 2%.

Therefore, the annual growth rate of real GDP per capita for this economy is 2%.