Which of the following is true with regard to Harrod's Model of Economic Growth ? (a) Actual rate of…
In Harrod's growth model, the actual growth rate (\(G\)) is determined by the saving ratio (\(s\)) and the actual incremental capital-output ratio (\(C\)) according to \(GC…
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Which of the following is true with regard to Harrod's Model of Economic Growth ?
(a) Actual rate of growth is determined by the saving ratio and the incremental capital-output ratio.
(b) Warranted rate of growth is determined by the current growth of the working population and the current potential for technical progress.
(c) Natural rate of growth is the rate of growth required for the full utilisation of a growing stock of capital.
Answer and explanation
Correct answer A
In Harrod's growth model, the actual growth rate () is determined by the saving ratio () and the actual incremental capital-output ratio () according to , so statement (a) is true. Statements (b) and (c) interchange the definitions of the warranted rate (, the rate required for the full utilization of a growing capital stock) and the natural rate (, the ceiling growth rate permitted by population growth and technical progress). Thus, only (a) is true.
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