Question

5. Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1 percent per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5 percent. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A? (If your answer is 5 year, please enter 5)

Answer 1

56

Step-by-step explanation:

The rule of 70 can be used to determine the amount of years it would take the GDP of a country to double given its growth rate

Number o year for GDP to double = 70 / growth rate of country

for country A = 70 / 5 = 14 years

for country B = 70 / 1 = 70 years

70 years - 14 years = 56 years