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Describe the Harrod-Domar model of growth and With the use of economic theory, discuss the policies a government might introduce to promote economic development. [14]
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Elizabeth Wood Describe the Harrod-Domar model of growth [6] With the use of economic theory, discuss the policies a government might introduce to promote economic development. [14] The Harrod-Domar model was developed in the 1930's. The suggestion is made that high levels of savings are important to growth as savings provide funds, which can then be borrowed for investment purposes. The economy's rate of growth therefore depends on the level of saving and the productivity of the investments that were made. The productivity of investments can be summarised by the economy's capital-output ratio, e.g., if $5 dollars worth of capital equipment was required for $1 of annual output, the capital-output ratio 5:1 would exist. A lower ratio is more favourable, 4:1, would indicate that only $4 of capital equipment was needed to produce $1 of annual output. The model itself shows long-term growth. It tends to show that there will be no...
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