Question

Suppose that in 1945 Japan had an initial per capita GDP of $10,000 per year and China had a per capita GDP of $250. Subsequently, China is growing at 7 percent per year and Japan is growing at 3.5 percent per year until 2005 and then stops growing altogether. In 2015, ________ would have been the lower-income country, with a per capita GDP of approximately ________. (Hint: you may want to use the Rule of 70 to answer this question.)

Answer 1

In 2015, China would have been the lower-income country, with a per capita GDP of approximately 32,000.

We would use the rule of 70 to answer this question.

2015-1945= 70 years.

China annual growth rate is 7%. so according to the rule of 70.

=
`(70)/(7)` = 10 years is the time it takes China to double.

70/10 = China's GDP would double 7 times in these 70 years.

China GDP in 2015: 250 * 2 * 2 * 2 * 2 * 2 * 2 * 2= 32,000.

Japan GDP in 1945: $10,000

Since Japan's economy stops growing in 2005.

2005-1945 = 60 years.

Japan annual growth rate is 3.5%. so according to the rule of 70.

`(70)/(3.5)` = 20 years is the time it takes Japan to double.

60/20 = China's GDP would double 3 times in these 60 years.

Japan GDP in 2015: 10,000 * 2 * 2 * 2= 80,000.