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Question 6

In a developing economy, the incremental capital-output ratio (ICOR) is constant at 4.5. The government aims to increase the annual rate of economic growth from 2.0% to 4.0% using the Harrod-Domar growth model. Assuming no foreign aid or capital inflows, by how many percentage points must the domestic savings ratio increase to achieve this target?

2.02.02.0 percentage points

4.54.54.5 percentage points

9.09.09.0 percentage points

18.018.018.0 percentage points

Development Questions

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