Suppose real GDPs in Hauck and Meran are identical at $10 trillion in 2010. Suppose Hauck's economic growth rate is 2% and Meran's is 4% and the rates remain constant over time. Calculate the percentage difference in their levels of potential output in 2046.

Question

Quizplus · Accepted Answer

We can use the rule of 70 to estimate the approximate number of years it takes real GDP to double:

- Hauck: 70/2 = 35 years for real GDP to double
- Meran: 70/4 = 17.5 years for real GDP to double

To find the levels of potential output in 2046, we need to double the initial real GDP for both countries:

- Hauck: $10 trillion x 2 = $20 trillion potential output in 2046
- Meran: $10 trillion x 2^2 = $40 trillion potential output in 2046

The percentage difference in their levels of potential output in 2046 is:

- ($40 trillion - $20 trillion) / $20 trillion x 100% = 100%

Therefore, Meran's potential output will be 100% higher than that of Hauck's.

Suppose Real GDPs in Hauck and Meran Are Identical at $10