As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by
A) dividing 70 into the annual rate of inﬂation.
B) dividing the annual rate of inﬂation into 70.
C) subtracting the annual change in nominal incomes from 70.
D) multiplying the annual rate of inﬂation by 70.

Question

Quizplus · Accepted Answer

The "rule of 70" is a quick way to estimate the amount of time it takes for a variable to double in value based on its growth rate. To apply this rule to the price level, we divide 70 by the annual rate of inflation (measured as a percentage). For example, if the inflation rate is 4%, we would divide 70 by 4 to find that it would take approximately 17.5 years for the price level to double. Therefore, the correct choice is B, which states that the number of years required for the price level to double can be found by dividing the annual rate of inflation into 70.

As Applied to the Price Level, the "Rule of 70