Explain why even small changes in the rate of economic growth are significant. Use the “rule of 70” to demonstrate the point.
What will be an ideal response?
Small changes in the rate of growth can be very meaningful, especially for a country where a fraction of a percent change in the growth rate may mean the difference between starvation and hunger.
Over a period of time small changes are cumulative in the same way that compound interest payments are cumulative on a bank account. Using the rule of 70 to estimate the time it takes to double GDP, we can see that a country whose growth rate is 5% takes 14 years to double its GDP, but a country whose growth rate is 3% may take nearly 10 years longer to double its GDP or about 23.3 years. If these countries continued to grow at their respective 5% and 3% rates, in 28 years the first country’s GDP would be quadrupled, whereas in the second country, it would take nearly 47 years to quadruple its GDP from the current year.
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Use the following graph to answer the next question.
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