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The Rule of 70, also called the Top Rule of 70, is a handy-dandy way of determining how long it will take real GDP per capita or any other variable to double.
⬇️Here is the formula⬇️
Source: Ideas Make Market
Let's go through a situation to see how we can use this formula.
- Say the current real GDP per capita in Econland is $40,000.
- We know that real GDP per capita for Econland grows at an annual rate of 5%. Notice we need an annual rate for our calculations.
- Know let's figure out how long would it take for real GDP per capita to double.
- One thing to note is we don't convert the percentage into a decimal.
- This will give you a crazy big number, so that is how you know you preformed the calculation incorrectly.
- This calculation of growth is important because it's the best measurement of an economy's ability to produce, and therefore gives us an indication on the health of the economy in the long term.