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Harrod-Domar model
Title: Harrod-Domar model
Category: Literature / English
Details: Words: 883 | Pages: 3.8 (approximately 235 words/page)
Harrod-Domar model
The Harrod-Domar model explains how the income of today affects the income of tomorrow in a simple equation where the data entries are minimal. Although the Harrod-Domar model is easy to use, there are a few limitations. The economy only enters equilibrium when there is a full employment of both labor and capital. Using the fixed-coefficient production function, the capital-labor ratio must remain constant. On a graph, with capital on the y-axis and labor on …showed first 75 words of 883 total…
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…showed last 75 words of 883 total…constant growth at full employment of capital. The capital stock to output ratio (v) is capital stock divided by output, where the variables grow at the same rate. Output grows at a rate of g; therefore, capital stock must be growing at the same rate. If we apply the above logic to labor, the population must be growing at same growth rate, g. Now what if the labor force is growing too fast, where n
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