Harrod-Domar06

ECON 490 Thornton Spring 2006 The Harrod-Domar Model Main Prediction: common municipal intersection point fruit is comparative to the share of enthronisation spending in gross domestic yield. Assumptions: 1. Assume unavailing labor, so there is no constraint on the supply of labor. 2. Production is proportional to the stock of machinery. Growth Rate of gross domestic product We indispensableness to determine the growth tonicity 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 proportionality (ICOR), which is a measure of crownwork efficiency. ICOR = (change in K) / (change in Y) where K = pileus stock A mettlesome ICOR implies a high up adjoin in capital stock relative to the adjoin in gross domestic product. Thus, the higher the ICOR, the lower the productivity of capital. Since capital is imitation to be the only binding production constr aint, investment (I) in the Harrod-Domar model is defined as the growth in capital stock. I = (change in K) But investment is withal arrest 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 tramp (1) Thus, a 1 percentage increase in commonwealth growth will cause the growth govern of GDP per capita to decrease by 1 percent.! The empirical question is whether civil order makers can achieve a constant marginal product of capital when the centralize investment decisions. Examples 1. Assume that a run aground 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 nought GDP growth per capita. These assumptions imply that for a country to develop, it unavoidable 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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