Rule of 70 & Real GDP

As we discussed in class, the Rule of 70 is used to figure out how quickly something will double when it is growing exponentially. When you divide 70 by the percent increase the outcome is the doubling time. When you divide 70 by the doubling time the outcome is the growth. The Rule of 70 is often used to predict population growth but it has other uses as well. One of these other useful applications of the rule is estimating how long it would take a country’s real gross domestic product to double. Here you use the GDP growth rate in the divisor of the rule which is similar to calculating compound interest rates.

For example, if the growth rate of Japan is 10%, the Rule of 70 predicts that it would take seven years for Japan’s real GDP to double.

That being said, it is important to remember that the Rule of 70 is only an estimate based on forecasted growth rates. Therefore, if the rate of growth fluctuate then the original calculation may be inaccurate. Because of this, the Rule of 70 should not be used where growth rates are anticipated to vary dramatically.

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