Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1% per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5%. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A?

Question

Quizplus · Accepted Answer

Using the rule of 70, we can find how long it takes for GDP to double at a given growth rate. For Country A with a growth rate of 5%, it will take approximately 14 years for its per capita GDP to double.

For Country B, with a growth rate of 1%, it will take approximately 70 years for its per capita GDP to double.

Therefore, the difference in time it will take for Country B to double its per capita GDP level compared to Country A is 56 years (70 - 14 = 56). Thus, the answer is C.

Suppose Economies a and B Have the Same Initial Level