Chapter 18. Question 15

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Question 15
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Question

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? (Hint: Use the Rule of 70 to approximate the number of years needed for GDP to double.)+sbSKJmvg9s=.
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” (please link to section in the ebook).
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” (please link to section in the ebook).

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Question

В. If India’s economy grows at 7% per year, its GDP will double to $4.5 trillion in the year 5OBtXf0LQJM=, and will increase 16-fold to $36 trillion in the year 8bv5kuAi1wo=.
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” (please link to section in the ebook).
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” (please link to section in the ebook).

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Question

С. If each country’s growth rate continues at the same rate, the U.S. GDP will reach $72 trillion in the year XYH6ovag0oM= and India’s GDP will reach $72 trillion in the year 6g9996vZoOU=.
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) = 2063.
In Part B, you determined it would take 10 years for India’s GDP to double, and that in the year 2056, India’s GDP would be approximately $36 trillion. Therefore, if India’s growth rate remains at 7%, India’s GDP will double to $72 trillion in the year (2056 + 10) = 2066.
For further review, see section “Small Differences in Growth Lead to Large Differences in Income Over Time” (please link to section in the ebook).
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) = 2063.
In Part В, you determined it would take 10 years for India’s GDP to double, and that in the year 2056, India’s GDP would be approximately $36 trillion. Therefore, if India’s growth rate remains at 7%, India’s GDP will double to $72 trillion in the year (2056 + 10) = 2066.
For further review, see section “Small Differences in Growth Lead to Large Differences in Income Over Time” (please link to section in the ebook).