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How Can I Use the Rule of 70 to Estimate a Country’s GDP Growth?

What Is the Fact of 70?

The rule of 70 is a way of estimating the time it takes to double a number based on its growth rate. It can also be referred to as folding time. The rule of 70 calculation uses a specified rate of return to determine how many years it’ll take for an amount—or a meticulous investment—to double.

When comparing different investments with different annual compound interest rates, the resolve of 70 is commonly used to quickly determine how long it would take for an investment to grow. Although it’s only an esteem of the future value of an investment, it can be effective in determining how many years it’ll take for an investment to double. The rule of 70 is much used in discussions of population growth, and it can also be used to make estimates about economic growth, usually well-thought-out by gross domestic product (GDP).

Key Takeaways

  • The rule of 70 is a way of estimating the time it takes to double a number based on its spread rate.
  • The rule of 70 can be effective in determining how many years it will take for an investment to double; it can also be occupied to make estimates about economic growth, usually measured by gross domestic product (GDP).
  • GDP is the total monetary or demand value of all the finished goods and services produced within a country’s borders in a specific time period.
  • Because midget differences in annual growth rates result in large differences in the size of economies, the rule of 70 can act as a rule of thumb in symmetry to put different growth rates into perspective.

The Formula for the Rule of 70

To calculate the rule of 70 for investments, first, be in vogue the annual rate of return or growth rate on the investment. Next, divide 70 by the annual rate of growth or generate.

Using the Rule of 70 to Estimate Economic Growth

The

Rule of 69 vs. Rule of 72 vs. Rule of 70

Some economists refer to the “standard of 69” or the “rule of 72.” These are just variations on the rule of 70 concept. The different parameters—69 or 72—point to different degrees of numerical precision and different assumptions regarding the frequency of compounding.

Specifically, 69 is the most conscientious parameter for continuous compounding, and 72 is a more accurate parameter for less frequent compounding and modest growth in any events. But 70 is an easier number to calculate with, in general.

For example, assume you want to compare the number of years it leave take the U.S. GDP to double to the number of years it would take China’s GDP to double. Suppose that the United States had a GDP of $21.4 trillion for the trendy year and a GDP of $20.5 trillion for the previous year. The economic growth rate is 4.3% (($21.4 trillion – $20.5 trillion) / ($20.5 trillion)).

On the other intimately, assume China had a GDP of $14.3 trillion for the current year and $13.9 trillion for the previous year. China’s economic broadening rate is 2.8% (($14.3 trillion – $13.9 trillion) / $13.9 trillion).

It would take approximately 16.28 years (70 / 4.3) years for the U.S. GDP to clone. On the other hand, it would take 25 years (70 / 2.8) for China’s GDP to double.

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