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What is the Harrod-Domar growth model?
What is the Harrod-Domar growth model?
A model of economic growth developed by Roy Harrod and Evsey Domar that emphasizes the role of investment in economic expansion.
Harrod's model suggests that there exist multiple equilibrium growth rates for an economy.
Harrod's model suggests that there exist multiple equilibrium growth rates for an economy.
False
Which of the following concepts is a key aspect of Harrod’s model?
Which of the following concepts is a key aspect of Harrod’s model?
What is the dual role of investment according to Harrod and Domar?
What is the dual role of investment according to Harrod and Domar?
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What is meant by the term marginal propensity to save (MPS)?
What is meant by the term marginal propensity to save (MPS)?
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In Harrod's model, which statement is true regarding firms' investment plans?
In Harrod's model, which statement is true regarding firms' investment plans?
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What does the term 'equilibrium growth path' refer to in Harrod's model?
What does the term 'equilibrium growth path' refer to in Harrod's model?
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Study Notes
Learning Outcomes
- Understand Harrod’s model framework and concepts.
- Comprehend the structure and functionality of Harrod’s model.
- Learn about the various rates of growth applicable to economies.
Introduction
- Developed by Roy Harrod and Evsey Domar to analyze economic growth and business cycles.
- Expanded upon the Keynesian framework to incorporate the impact of investment on output capacity.
- Investment serves a dual role: generating immediate income (demand side) and enhancing production capacity (supply side).
- Aim to determine an equilibrium growth path that ensures full employment.
Harrod’s Model
- Introduced by Harrod in 1939 in the ‘Economic Journal’.
- Seeks to establish an equilibrium growth rate of output, ensuring sustained growth over time.
- Investigates the stability of this equilibrium—whether the economy self-corrects towards it if it deviates.
Basic Assumptions of Harrod's Model
- Savings and investment relate to the same period's income; both are net of depreciation.
- Constant savings proportion leads to the marginal propensity to save (MPS) equating to the average propensity to save (APS).
- Income is influenced by investment via the multiplier effect, while investment depends on the accelerator effect.
- Firms adjust desired investment rates based on differences between actual and planned investments.
- The model assumes initial full employment of capital, with no lags in demand-supply adjustments, particularly in investment and production capacity.
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Description
This quiz delves into Harrod's model framework, exploring its structure, functionality, and implications for economic growth. Understand the dual role of investment, equilibrium growth paths, and the model's basic assumptions. Test your knowledge on the key concepts introduced by Roy Harrod.
