Economics · Harrod-Domar Growth Model
Consider the following statements regarding the Harrod-Domar Growth Model: 1. The central equation establishes the warranted growth rate as the national savings rate divided by the incremental capital-output ratio (ICOR). 2. It posits that a divergence between the actual growth rate and the warranted growth rate triggers self-reinforcing booms or slumps, a condition known as 'knife-edge instability'. 3. It is built upon the assumption of a variable capital-output ratio that allows for continuous factor substitution between capital and labour. 4. It asserts that low-income economies remain trapped at a low warranted growth rate primarily due to their exceptionally high national savings rates. Choose the correct option:
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