Which of the following are the assumptions of Harrod-Domar growth model? a) There is no government…
The Harrod-Domar model assumes no government intervention, excludes exogenous influences on the growth variables and takes the capital-output ratio as constant, so a, b and…
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Which of the following are the assumptions of Harrod-Domar growth model?
a) There is no government intervention in economic activity of an economy
b) Exogenous factors do not influence the growth variables
c) The marginal propensity to save changes as the level of income changes
d) Capital -output ratio is constant
Answer and explanation
Correct answer A
The Harrod-Domar model assumes no government intervention, excludes exogenous influences on the growth variables and takes the capital-output ratio as constant, so a, b and d are assumptions. The model also takes the propensity to save as constant, with the average propensity to save equal to the marginal propensity to save; a marginal propensity to save that changes with income is therefore not one of its assumptions.
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Telangana SET (TG SET)