Assume that a leader country has real GDP per capita of 4000

Assume that a “leader country” has real GDP per capita of $40,000, whereas a “follower country” has real GDP per capita of $20,000. Next suppose that the growth of real GDP per capita falls to zero percent in the leader country and rises to 5 percent in the follower country.

If these rates continue for long periods of time, how many years will it take for the follower country to catch up to the living standard of the leader country? ______

Solution

Real GDP per capita for \"leader country\" is $40,000.

Growth rate of real GDP per capita in the leader country is 0%.

Since, this growth rate will continue for long periods, the real GDP per capita for \"leader country\" will remain constant at $40,000.

Real GDP per capita for \"follower country\" is $20,000.

Growth rate of real GDP per capita in the follower country is 5%.

Using Rule of 70 -

Time period in which real GDP per capita wil double = 70/Growth rate of real GDP per capita = 70/5 = 14 years

So, in 14 years, real GDP per capita of follower country will double that is it will increase from $20,000 to $40,000.

Thus,

The follower country will take 14 years to catch up to the living standard of the leader country.