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Chapter 7 Macro (18 Econ)

Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.

In 2016, U.S. GDP was approximately $18 trillion, while India’s GDP was approximately $2.25 trillion. However, India is growing faster than the United States.

A. If the U.S. economy grows at 3% per year, in what year will the U.S. GDP double to $36 trillion? .
Correct! The Rule of 70 provides an estimate of the number of years for a value to double. In this problem, divide 70 by the growth rate, which is 3 percent. 70 ÷ 3=23 1/3. This means the U.S. GDP will double every 23 1/3 years. To answer the question, 2016 + 23 1/3 = 2039 1/3, so in 2040 the U.S. GDP would have doubled. For further review, see section “Small Differences in Growth Lead to Large Differences in Income Over Time.”
Incorrect! The Rule of 70 provides an estimate of the number of years for a value to double. In this problem, divide 70 by the growth rate, which is 3 percent. 70 ÷ 3 = 23 1/3. This means the U.S. GDP will double every 23 1/3 years. To answer the question, 2016 + 23 1/3 = 2039 1/3, so in 2040 the U.S. GDP would have doubled. For further review, see section “Small Differences in Growth Lead to Large Differences in Income Over Time.”
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      В. If India’s economy grows at 7% per year, its GDP will double to $4.5 trillion in the year , and will increase 16-fold to $36 trillion in the year .
      Correct! Using the Rule of 70, India’s GDP will double every 10 years, since 70/7 = 10. India’s GDP will increase to $4.5 trillion in 2026, double again to $9 trillion in 2036, double that again to $18 trillion in 2046, and once again double that to $36 trillion in 2056.
      For further review, see section “Small Differences in Growth Lead to Large Differences in Income Over Time."
      Incorrect! Using the Rule of 70, India’s GDP will double every 10 years, since 70/7 = 10. India’s GDP will increase to $4.5 trillion in 2026, double again to $9 trillion in 2036, double that again to $18 trillion in 2046, and once again double that to $36 trillion in 2056.
      For further review, see section “Small Differences in Growth Lead to Large Differences in Income Over Time."
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          С. If each country’s growth rate continues at the same rate, the U.S. GDP will reach $72 trillion in the year and India’s GDP will reach $72 trillion in the year .
          Correct! In Part A, you determined that it would take 23 1/3 years for the U.S. GDP to double, and that in the year 2040, U.S. GDP would be approximately $36 trillion. If the growth rate remains at 3%, U.S. GDP will increase to $72 trillion in the year (2040 + 23 1/3) = 2064.
          Incorrect! In Part A, you determined that it would take 23 1/3 years for the U.S. GDP to double, and that in the year 2040, U.S. GDP would be approximately $36 trillion. If the growth rate remains at 3%, U.S. GDP will increase to $72 trillion in the year (2040 + 23 1/3) = 2064.
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