Question

A mathematical approximation called the rule of 70 tells us that the number of years that it will take something that is growing to double in size is approximately equal to the number 70 divided by its percentage rate of growth. Thus, if Mexico’s real GDP per person is growing at 7 percent per year, it will take about 10 years (= 70/7) to double. Apply the rule of 70 to solve the following problem. Real GDP per person in Mexico in 2005 was about $12,000 per person, while it was about $48,000 per person in the United States. If real GDP per person in Mexico grows at the rate of 10 percent per year, about how long will it take Mexico’s real GDP per person to reach the level that the United States was at in 2005? (Hint: How many times would Mexico’s 2005 real GDP per person have to double to reach the United States’ 2005 real GDP per person?)

Answer 1

Answer: 14 years

Step-by-step explanation:

In 2005, Mexico's GDP per capita was $12,000 per person whilst that of the US was $48,000. How many times should Mexico double to get to $48,000.

The first time it doubles it will become = 12,000 * 2

= $24,000

The second time it will become = 24,000 * 2

= $48,000

It will therefore have to double twice to get to America's level in 2005.

Mexico is growing at 10% a year. Using the Rule of 70, GDP per capita will double in;

= 70/10

= 7 years.

The GDP per capita needs to double twice to get to America's level so;

= 7 * 2

= 14 years