Harrod-Domar Growth Model

This model says that every economy must save a certain proportion of its national income, if only to replace worn-out or impaired capital goods (buildings, equipment, and materials). However, if this economy wishes to grow, new investments representing net additions to the capital stock are necessary. This implies that the rate of economic growth is determined by National Savings Ratio as well as National Capital Output ratio. The model further says that more an economy is able to save and invest out of a given GDP, the greater the growth in GDP will be.

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