Th4.3: ^^ Savings Gap

Question 1

Why do developing countries save less?

Answer 1

they have lower incomes

Question 2

What is a savings gap?

Answer 2

the difference between actual savings and the level of savings needed to achieve a higher growth rate

Question 3

What does the Harrod-Domar model suggest?

Answer 3

savings provide the funds which are borrowed for investment purposes and that growth rates depend on the level of saving and the productivity of investment - economic growth depends on amount of labour and capital

Question 4

However what are the problems with this model?

Answer 4

economic growth is not the same as development
investment could be wasted
difficult for individuals to save when they have little income
borrowing from overseas causes problems with debt