Suppose real GDPs in Hauck and Meran are identical at $10 trillion in 2000. 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 2036.

A. Meran’s potential output will be 100% higher than that of Hauck’s.

Explanation:

Using the rule of 70

For Meran' we find that in approximately 36 years (2000 - 2036), their output quadruple at 4% increases. That is,

Time taken to double = 70/4 = 17.5 years

17.5 × 2 = 35 years (time taken to quadruple).

While for Hauck, at 2% increase will take them 35 years to double using the rule of 70. That is,

70/2 = 35 years (time taken to double).

Thus, by 2036, Meran output will be 100% greater than that of Hauck.

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