CC9 – Unit 3 – DS class on 9.4.

2020 Thursday

Please prepare the following questions:

Questions on Harrod Model and Domar Model:

1. State in brief the basic formulations of the Harrod model of growth. 10

2. How does the Harrod model explain the occurrence of business cycles? 10

3. Discuss the principal features of the Domar Model of growth. 10

4. State the conditions necessary for steady growth and maintaining steady growth in
Domar’s Model. 10

5. a) Describe the main features of the Harrod & Domar growth models
b) Show why growth may not take place in the poorest countries (the vicious circle)
c) In the models, three different opportunities for boosting growth can be
accommodated. What are they and how is growth enhanced? 10+5+5

6. In the Harrod Model, ICOR is 4.5:1, population growth is 2% per annum, and the
investment rate is 27%. Hence, the annual growth rate of per capita output will be:
a) 2.5%
b) 9%
c) 6%
d) 4% (5)

Solution: Ans is (d)

ICOR = v=4.5

Investment rate=s = 27%=0.27

Therefore, growth rate of total output = s/v = 0.27/4.5 = 6%

𝒀
Per Capita Output PCI = 𝑳, where Y is total output and L is population or labour
force.

log PCI = log Y – log L

Differentiating w.r.t time,

𝟏 𝒅𝑷𝑪𝑰 𝟏 𝒅𝒀 𝟏 𝒅𝑳
= -
𝑷𝑪𝑰 𝒅𝒕 𝒀 𝒅𝒕 𝑳 𝒅𝒕

1
Therefore, growth rate of per capita output = growth rate of total output –
growth rate of population = 6% - 2% = 4%