The Harrod Domar growth model suggests that growth is ?
Correct answer: A. directly related to savings and inversely related to the capital/output ratio
- A. directly related to savings and inversely related to the capital/output ratio
- B. directly related to the capital/output ratio and inversely related to savings
- C. indirectly related to savings and the capital/output ratio
- D. directly related to savings and the capital/output ratio
Explanation
In the Harrod-Domar model, the growth rate is approximately g = s/v, where s is the saving rate and v is the capital-output ratio. Growth therefore rises with saving and falls when more capital is needed per unit of output.
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