Harrod Domar Economics

Harrod-Domar Growth Model Notes

The Harrod-Domar Model explains an economys harvest-feast rate in terms of the level of saving and productivity of outstanding.

( G=S/K
S= theme savings balance; G=rate of harvest-tide of GDP; K= bang-up output proportionality

The mock up is based on the notion that real income determines the amount of saving, which determines investment, which in turn is what affects the rate of economic growth. The Harrod-Domar get supports the Keynesian economic explanations in that an economy does not automatically achieve its potential.

The model assumes:
The economy has a fixed p all(prenominal)y: output ratio=K
Investment is defined as a change in capital stock (K)
Savings is a given proportion of national income
The economy is closed; where S=I

G=S/K
The equation implies that the growth rate of national income is directly related to to the saving rate S. Whereas, the capital output ratio K is negatively related to the growth rate. Since the capital output ratio is fixed in the assumptions, this model focuses mainly on the saving rate as and one factor in raising the growth rate. The higher(prenominal) the level of saving and investment, the higher level of growth became the conclusion.





The Harrod-Domar equating states that the rate of GDP is determined jointly by the national savings ratio (S) and the national capital output ratio (K)
Therefore:
1) The growth rate of national income is directly (positively) related to the savings ratio, i.e., the more an economy is able to save and thus invest out of a given GDP, the greater impart be the growth of that GDP.
2) The growth rate of national income is indirectly (negatively) related to the economys capital-output ratio, i.e., the higher is k, the lower leave behind be the rate of GDP growth.




Policy options to improve each variable in an LEDC:
Imports are additional investments into a interior(prenominal) economy and these imports include various types of inputs,...If you want to get a full essay, order it on our website: Ordercustompaper.com



If you want to get a full essay, wisit our page: write my paper