harrod Domar

Question 1

what does the Harrod domar model focus on?

Answer 1

focuses on relationship between investment, savings, and economic growth. Has a key difference from Solow, fixed capital and output ratio

Question 2

what does a fixed capital output ratio mean?

Answer 2

output occurs in fixed porportion to capital, no diminishing returns, constant returns to capital, an increase in capital leads to proportional increase in output

Question 3

what are the model assumptions

Answer 3

1. Closed economy
   2.savings = investment
   3.constant fixed capital output ratio
   (check sheet)

Question 4

what is the capital accumulation equation

Answer 4

Kt+1=(1-delta)Kt+It

Question 5

derive aggregte growth rate

Answer 5

check sheet

Question 6

what are the other 2 assumptions

Answer 6

Lt=size of labor force=population
Lt+1=(1+n)Lt

Question 7

using the extra 2 assumptions, derive per capita growth rate

Answer 7

check sheet