Question

With reference to the Harrod - Domar growth model, consider the following statements:
1. Higher the capital-output ratio, the higher will be the GDP.
2. The national income of an economy is inversely proportional to the savings ratio.

Which of the above statements is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer 1

Answer:

Hey dude this is ur answer

Explanation:

B Could Be the right answer But I m not sure.

Answer 2

Option D

More Information

■ Harrod-Domar Growth Model :-

• Harrod-Domar Growth Model suggests that the economy’s rate of growth depends on:

☆ The level of national saving (S)

☆ The productivity of capital investment (this is known as the capital-output ratio)

• If the capital-output ratio is low, an economy can produce a lot of output from a little capital. If the capital-output ratio is high then it needs a lot of capital for production, and it will not get as much value of output for the same amount of capital.

• As per this model, Rate of growth of GDP = Savings ratio / capital-output ratio.

• This implies if the savings rate is 10% and the capital-output ratio is 2, then a country would grow at 5% per year.

• Based on the model, therefore, the rate of growth in an economy can be increased in one of two ways:

☆ Increased level of savings in the economy (i.e. gross national savings as a % of GDP)

☆ Reducing the capital-output ratio (i.e. increasing the quality/productivity of capital inputs)

_______