Question

If real GDP grows at 7 percent per year, then real GDP will double in approximately ________ years.

a. 70

b. 14

c. 10

d. 7

Short answer

Option (c) is correct. The real GDP will double in approximately 10 years.

Step-by-step solution

Step 1. Explaining the concept “rule of 70” to determine the required number of years for an economy to double its size

The economists use the “rule of 70” to evaluate the approximate number of years an economy will take to double its size. The mathematical expression under the rule of 70 is given below:$Approximateno.ofyrsrequiredtodoubletherealGDP=\frac{70}{Annualpercentagerateofgrowth}$

Step 2. Calculating annual growth rates

The required annual growth rate for a country to double its output can be calculated using the “rule of 70” formula.

Annual percentage rate of growth = 70/Approximate number of years required to double the GDP

The required annual percentage growth for a country to double its output in 7 years is:

$$\begin{gathered} Annualpercentagerateofgrowth=\frac{70}{7} \\ =10percent \end{gathered}$$

The required annual growth rate is 10 percent. Hence, option (c) is correct.