The average rate of growth for slow-growth countries is around 2% per year, and

Question

The average rate of growth for slow-growth countries is around 2% per year, and for fast-growth, greater than 5% per year.

1. Suppose the growth rate of the economy is 2%. The size of the economy roughly doubles every:

a. 5 Years
b. 10 Years
c. 20 Years
d. 35 Years
e. 50 Years or more

2. If instead the growth rate is 7%, the doubling time for the economy is:

a. 5 Years
b. 10 Years
c. 20 Years
d. 35 Years
e. 50 Years or more

3. Economic growth is important to understand because:

a. It is closely tied to standard of living.
b. Growth guarantees that the rich get richer and the poor get poorer.
c. Income equality cannot exist without growth.
d. Understanding economic growth is key to getting a banking job after graduation.

Explanation / Answer

(1) The Rule of 72 states, an amount will double in a time that is equal to (72 / growth rate).

Here, growth rate = 2%.

So, time in which this growth will double = 72 / 2 = 36 years

Option (d) is closest.

(2)

Here, growth rate = 7%

Again using rule of 7, the doubling period = 72 / 7 = 10.28 years

Option (b) is closest.

(3)

Economic growth is measured by changes in real GDP & helps us understand how the starndard of living is changing in the economy. Growth guarantees neither a gain/loss of wealth, nor income equality.

Correct option (a)

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