Use the rule of 70 to illustrate how small differences in growth rates can have a large impact on how rapidly the standard of living in a country increases
What will be an ideal response?
The rule of 70 refers to a calculation that determines, for a given growth rate, the number of years it will take for real GDP to double in an economy. The formula is as follows:
Number of years to double = .
If the growth rate is 1%, it will take 70 years for GDP to double. If the growth rate is 2%, GDP will double in 70/2 years = 35 years. A small increase in the growth rate (from 1% to 2%) cuts the years it takes for the economy to double in half. If the growth rate is 5%, GDP will double in 14 years. So when the rate of growth jumps 3 more percentage points, GDP doubles in less than half the time as when growth was 2%.
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Classical economists and monetarists believe that the economy operates at full- employment GDP. Therefore, any increase in the money supply will cause both nominal and real GDP to increase
Indicate whether the statement is true or false
To derive the marginal physical product of capital,
a. all other resources must be held fixed b. capital must be held fixed c. all resources, including capital, must be held fixed d. all resources are variable e. output must be held fixed