Fun with Rule of 72 and Real GDP Growth Rates

Students of finance are well aware of the rule of 72 to estimate the time taken to double your investment. (just divide the number 72 by your expected annual return to arrive at the number of years taken to double your investment)

If we extend this rule of 72 to real GDP growth rate we can estimate the time taken for the economy to double its GDP. In the table below we can see the US example. (data sourced from bea)


We can see the actual time taken for the GDP to double in column 3 and the time predicted by the rule of 72 in column 5, which seems to be a fair estimate. Extending this rule to any other economy we can estimate the time taken in number of years for the GDP to double based on expected annual GDP growth rate.

On the left hand scale we have the expected real GDP growth rates in % and the numbers on the right hand side indicate the time taken for the GDP to double in years. This should give us a fair idea about the growth rate of our economy!


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