Provide an appropriate response.
-Oil consumption is increasing at a rate of 2.1% per year. By what factor will oil consumption increase in 2 years? Use the approximate doubling time formula (rule of 70).
A)2.14
B)1.04
C)8.4
D)1.01

Question

Quizplus · Accepted Answer

The rule of 70 is used to estimate the doubling time of an investment or in this case, the growth of oil consumption. However, to find the factor by which oil consumption increases in 2 years at a rate of 2.1% per year, we use the formula for compound growth: $F = P(1 + r)^t$, where $F$ is the future value, $P$ is the present value (which can be taken as 1 for simplicity), $r$ is the rate of increase (2.1% or 0.021), and $t$ is the time in years (2 years in this case). Plugging in the values, we get $F = 1(1 + 0.021)^2$, which simplifies to approximately 1.04. This means the oil consumption will increase by a factor of 1.04 in 2 years, not double. The rule of 70 is not directly used for this calculation; it's more for estimating doubling time, not the factor of increase over a specific period.

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