Please don't use Ai solution The Harrod-Domar growth model is given byS₁ = aY₁,0< a <1I₁ =b(Y-Y), b>1S₁ = I₁where Y, represents income in period t, S, represents savings in period t, I, representsinvestment in period t, and a and b are parameters. Find the time paths for income, savings,and investment.

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Answered: The Harrod-Domar growth model is given…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The Harrod - Domar growth model is a simple macroeconomic growth model that states that investment is proportional to change in income:/= 3.5(Y, -Y.,), where I, is the investment at the time - period (in $ million) Y, and Y., are the income at the time - period and -1, respectively (in $ million) 3.5 is the capital - output ratio (constant). The savings at the time-period / depends on the proportional share of income: S = 0.25Y, where S, is the saving at the time - period / ( in $ million) 0.25 is the average saving rate (constant). Investment and savings must be equal in any period so that the equilibrium condition can be written as I = S, Using the assumptions above answer the following questions: (a) Write the equilibrium equation as a difference equation in Y, using the equilibrium condition provided above. (b) Solve the difference equation that you derived in (a), assume that given Y = $9.5 million. (c) Comment on the stability of the system. 0
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The Harrod-Domar growth model is given by S₁ = aY₁, 0< a <1 I₁ =b(Y-Y), b>1 S₁ = I₁ where Y, represents income in period t, S, represents savings in period t, I, represents investment in period t, and a and b are parameters. Find the time paths for income, savings, and investment.