Harrod-Domar06

ECON 490 Thornton Spring 2006 The Harrod-Domar Model Main Prediction: vernacular domestic intersection point growth is comparative to the share of coronation spending in gross domestic harvesting. Assumptions: 1. Assume sluggish labor, so there is no constraint on the preparation of labor. 2. Production is proportional to the stock of machinery. Growth Rate of gross domestic product We necessity to determine the growth footprint of gross domestic product, which is defined as: G(Y) = (change in Y) / Y where Y = gross domestic product To do this, we estimate the additive Capital-Output balance (ICOR), which is a measure of crownwork efficiency. ICOR = (change in K) / (change in Y) where K = detonating device stock A mettlesome ICOR implies a amply adjoin in capital stock relative to the amplification in gross domestic product. Thus, the higher the ICOR, the lower the productivity of capital. Since capital is pretended to be the only binding productio n constraint, investment (I) in the Harrod-Domar model is defined as the growth in capital stock. I = (change in K) But investment is withal suggestion to savings (S), which is equal to the average propensity to save (APS) times GDP (Y).

Denote APS = s I = S = APS * Y = s*Y So, ICOR = (s Y) / (change in Y) Rearranging terms, G(Y) = (change in Y) / Y = s / ICOR Growth Rate of GDP per Capita The growth yard of GDP per Capita is defined as G(Y/P) = G(Y) G(P) From (1), G(Y/P) = s / ICOR - G(P) (2) where G(P) = the tribe growth dictate (1) Thus, a 1 percentage increase in tribe growth will cause the growth deem of GDP per capita to decrease by 1 per! cent. The empirical question is whether formula makers can achieve a constant marginal product of capital when the centralize investment decisions. Examples 1. Assume that a base has a savings/investment rate of 4 percent of their GDP and an ICOR of 4, they will stick out a growth rate of 1 percent. But if the population growth rate were also 1 percent, then the country would have zip GDP growth per capita. These assumptions imply that for a country to develop, it infallible to have an investment rate of around 12-15 percent of GDP,...If you want to fuck off a full essay, order it on our website: BestEssayCheap.com

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