1) Using the rule of 72, answer the following questions: (LO1) a

1) Using the rule of 72, answer the following questions: (LO1)
a. In how many years will it take income to double if it is rising each year by 1 percent? 2 
percent? 4 percent?
b. Which country would have higher income in 36 years: country A that begins with income 
of $3,000, increasing at an annual rate of 4 percent a year or country B that begins with 
income of $6,000, increasing at an annual rate of 2 percent a year? What about in 72 
years?
c. A country's income begins at $10,000 and rises to $20,000 in 18 years. What is the 
approximate annual rate of increase for income?

2. Fill in the blanks in the statements below. (LO2)
a. If the rate of real GDP growth is 3.5 percent and the rate of population growth is 1.2 
percent, then the growth rate of real GDP per capita will be equal to _____ percent.
b. If the rate of real GDP growth is 3.2 percent and the rate of population growth is _____ 
percent, then the growth rate of real GDP per capita will be equal to 2.2 percent.
c. If the rate of real GDP growth is _____ percent and the rate of population growth is 1.5 
percent, then the growth rate of real GDP per capita will be equal to 2.5 percent.

3. Explain the two reasons that new growth theory treats investment in capital and investment in 
technology differently. (LO4)
 

 
4. In the diagram below, draw a graph that relates output to the amount of capital and reflects 
the law of diminishing marginal productivity discussed in the textbook. (LO4)

5. Parts a - c below give the incomes of five people in a hypothetical economy. For each of 
these, calculate the mean level of income and the median level of income. Then answer the 
question in part d. (LO2)
a. $30,000; $40,000; $50,000; $100,000; $110,000
b. $30,000; $40,000; $50,000; $120,000; $140,000
c. $40,000; $50,000; $60,000; $110,000; $120,000
d. Why is median income a more meaningful measure than mean income?