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Question 7

According to the Harrod–Domar model of economic growth, the rate of growth is determined by the savings ratio and the capital-output ratio. Consider four developing economies with the following characteristics:

  • Economy A: Savings ratio of 10%, Capital-output ratio of 4.0
  • Economy B: Savings ratio of 15%, Capital-output ratio of 3.0
  • Economy C: Savings ratio of 12%, Capital-output ratio of 2.5
  • Economy D: Savings ratio of 18%, Capital-output ratio of 4.5

Which economy is predicted to achieve the highest rate of economic growth?

Economy A

Economy B

Economy C

Economy D

Development Questions

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