Economics · Economic Growth Models
'Knife-edge' equilibrium instability in the Harrod-Domar growth model arises because:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The propensity to save, the capital-output ratio, and the natural growth rate are determined independently by three distinct factors.✓
- 2The savings ratio and capital-output ratio are fixed by government policies.
- 3Entrepreneurs adjust savings rates according to population trends.
- 4The warranted growth rate is always equal to the natural growth rate.
Correct answer
The propensity to save, the capital-output ratio, and the natural growth rate are determined independently by three distinct factors.
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