Q8. Assume a closed economy. Suppose the capital-output ratio is 3, the depreciation rate is 3%, and the gross savings rate is 10%. Use the Harrod-Domar growth equation to determine the rate of growth in total output. What would the gross savings rate have to be to achieve 5% growth? Why is capital the only factor of production in the Harrod-Domar model? Compare the assumptions made about the production function in the Solow model and the Harrdo-Domar model.
Q8. Assume a closed economy. Suppose the capital-output ratio is 3, the depreciation rate is 3%, and the gross savings rate is 10%. Use the Harrod-Domar growth equation to determine the rate of growth in total output. What would the gross savings rate have to be to achieve 5% growth? Why is capital the only factor of production in the Harrod-Domar model? Compare the assumptions made about the production function in the Solow model and the Harrdo-Domar model.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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