Calculating Saving Rate of a Country using Harrod Domar Equation

Solution Library


Question

  1. Suppose a country’s real GDP per capita (PPP) grew at an average annual rate of 2.00% from 1960 through 1996, increasing from $769 to $1,546. Assuming the country’s GDP per capita continues growing at this average rate from 1996 through 2046, what will be the country’s real GDP per capita equal in 2046?

Use Harrod – Domar Model to answer the following question:

  1. Suppose a country’s capita-output ratio is 2.5.

a. Using the Harrod-Domar growth equation, what saving rate would have been required for this country to achieve an aggregate growth rate of 8 percent per annum?

b. With the same capital output ratio, what growth target could be achieved with a saving rate of 27 percent?

  1. If there is a large increase in the saving rate, and therefore a large increase in the amount of new capital formation, is the capital output ratio likely to rise, fall or remain the same? Explain.

Summary

This question belongs to economics and discusses about calculating a country’s real GDP per capita equal in 2046.

Word count: NA