Which of the following is not an assumption of Harrod’s model of growth ?
Harrod's fixed desired capital–output ratio, constant saving propensity and exogenous natural labour growth create the rigid growth framework. Flexible factor prices…
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Which of the following is not an assumption of Harrod’s model of growth ?
Answer and explanation
Correct answer D
Harrod's fixed desired capital–output ratio, constant saving propensity and exogenous natural labour growth create the rigid growth framework. Flexible factor prices enabling long-run substitution belong to the neoclassical adjustment mechanism, not the stated Harrod assumptions. The desired capital output ratio is constant. Savings are a constant proportion of real income in the economy. The labour force grows at some exogenously determined constant exponential rate. Factor prices are flexible in the long run. The desired capital output ratio is constant. This alternative fails the selection criterion or distinction explained above. Savings are a constant proportion of real income in the economy. This alternative fails the selection criterion or distinction explained above. The labour force grows at some exogenously determined constant exponential rate. This alternative fails the selection criterion or distinction explained above. Factor prices are flexible in the long run. This is the derived selection under the stated interpretation.
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