What Is the Rule of 70? | Dictionary of Economics Courses (2024)

The Rule of 70 is a quick and easy method to tell you how fast something that is growing will double in size over time. It doesn't matter what is growing -- it could be your savings account, the world population, computing power, the number of bacteria in a petri dish, or a country's economy -- the Rule of 70 will allow you to impress your friends and confound your enemies by quickly estimating the doubling time. But what is the Rule of 70?

If a variable is growing at a rate of x% per period, you can calculate how quickly it will double by taking 70 and dividing it by x, the growth rate. For example, suppose you have money in an investment account that has an annual rate of growth of 5% per year. Your money will grow 5% in the first year, and then in the second year, you'll get compound interest. The 5% growth will be on the original amount plus the growth from the first year. Given this compounding growth, how fast will you double your money? Well, if you were to actually calculate this out, the math would look like this. The Rule of 70 is an approximation for this calculation.

In the case of our 5% growth rate, the Rule of 70 says the doubling time is 70 divided by 5, or 14 years. The exact calculation? 13.86 years. So, the Rule of 70 is pretty accurate. The Rule of 70 comes in very handy in all kinds of ways -- for example, when comparing how living standards are changing in various countries. In growth miracles, like Korea, China, and Japan, we've seen annual growth rates of 7 to 10%. At 10% growth, that means living standards are doubling every seven years. China did this for 35 years. So, how much bigger is it 35 years later? If it doubles every 7 years for 35 years, then it doubled 5 times. Doubling five times means you multiply the original size times 2, times 2, times 2, times 2, times 2 -- or, much easier to say, you raise 2 to the 5th power. And that means GDP per capita in China is 32 times bigger than where it started 35 years before. The Rule of 70 lets you see the power of compounding without actually having to do the compounding.

Now, with the Rule of 70, we can quickly compare China's growth rate to most developed countries that typically see only a 2% growth rate, which means only two times bigger in 35 years -- a dramatic difference from being 32 times bigger. The Rule of 70 can also be used in reverse. If you know that house prices doubled between 2000 and 2006, for example, then you know that 70 divided by x equals 6 or that house prices increased at a rate of about 11.6% per year. The Rule of 70 gives us a handy tool to quickly approximate doubling time given that we know the annual growth rate. Check out our practice questions to test your skills on the Rule of 70. Or, if you're curious to learn more about why countries grow at such different speeds, let's start with one of the most extreme examples on the planet: North and South Korea.Click to understand why.

What Is the Rule of 70? | Dictionary of Economics Courses (2024)


What is the 70% rule in economics? ›

The rule of 70 is an easy method of estimating how quickly a variable will double if you know its annual growth rate. If a variable is growing at a rate of x% per period, you simply take 70 and divide it by x. The rule of 70 is useful for all sorts of applications.

What is the rule of 70 in economics quizlet? ›

The rule of 70. is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double. If real GDP per capita grows at a rate of 8.3 percent per year, it will take ___ years to double. ( rounded to one decimal place) 8.4 (70/8.3)

What is the rule of 70 determine the number of years it will take the economy to double at each growth rate? ›

The number of years it takes for a country's economy to double in size is equal to 70 divided by the growth rate, in percent. For example, if an economy grows at 1% per year, it will take 70 / 1 = 70 years for the size of that economy to double.

How to calculate with the rule of 70? ›

The Rule of 70 Formula

Hence, the doubling time is simply 70 divided by the constant annual growth rate. For instance, consider a quantity that grows consistently at 5% annually. According to the Rule of 70, it will take 14 years (70/5) for the quantity to double.

What is the rule of 70 simple definition? ›

The rule of 70 is used to determine the number of years it takes for a variable to double by dividing the number 70 by the variable's growth rate. The rule of 70 is generally used to determine how long it would take for an investment to double given the annual rate of return.

What is the 70% rule? ›

Put simply, the 70 percent rule states that you shouldn't buy a distressed property for more than 70 percent of the home's after-repair value (ARV) — in other words, how much the house will likely sell for once fixed — minus the cost of repairs.

Which statement about the rule of 70 is true? ›

Which statement about the Rule of 7 0 is true? It is fairly accurate for small growth rates.

What is the rule of 70 population growth? ›

Explanation of the Rule of 70

The formula is as follows: Take the number 70 and divide it by the growth rate. The result is the number of years required to double. For example, if your population is growing at 2%, divide 70 by 2. The result is 35; it will take 35 years for your population to double at a 2% growth rate.

Does the rule of 70 predict greater increases in the amount of income for richer or poorer countries when both have the same growth rate? ›

Answer: No, the rule of 70 states that the amount of time it will take a country's income to double is dependent on its population growth rate, not on its initial level of income.

How do you use the 70 rule? ›

Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.

What is the rule of 70 and how can this be used to determine the rate at which a given population will double? ›

To calculate this, you would use the rule of 70. This rule calculates the doubling time by dividing 70 by the growth rate. You might notice this is quite similar to the rule of 72, which has you divide the number 72 by the annual rate of return.

Does the 70% rule work? ›

While the 70% rule is a great place to start when estimating what you should pay for a property, you should also remember that it's just a tool, not a guarantee of profit. Any number of factors can affect a real estate purchase. First, it's possible your estimated repair costs won't be what you thought they would be.

What is the 7% rule in economics? ›

To calculate how long it takes money to double, divide the interest rate into 72. To see how long money triples, divide it into 115. Assuming a 7% interest rate, it will take approximately 10.3 years for the original principal to double and 16.4 years to triple. There is also a rule of 144.

What is Rule 72 in economics? ›

The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.

What is the rule of 70 for compound interest? ›

To calculate the doubling time, the investor would simply divide 70 by the annual rate of return. Here's an example: At a 4% growth rate, it would take 17.5 years for a portfolio to double (70/4) At a 7% growth rate, it would take 10 years to double (70/7)

Top Articles
Latest Posts
Article information

Author: Domingo Moore

Last Updated:

Views: 6246

Rating: 4.2 / 5 (53 voted)

Reviews: 84% of readers found this page helpful

Author information

Name: Domingo Moore

Birthday: 1997-05-20

Address: 6485 Kohler Route, Antonioton, VT 77375-0299

Phone: +3213869077934

Job: Sales Analyst

Hobby: Kayaking, Roller skating, Cabaret, Rugby, Homebrewing, Creative writing, amateur radio

Introduction: My name is Domingo Moore, I am a attractive, gorgeous, funny, jolly, spotless, nice, fantastic person who loves writing and wants to share my knowledge and understanding with you.