The Harrod-Domar model tells us that:

Question

Quizplus · Accepted Answer

The Harrod-Domar model states that the rate of growth is determined by the economy's rate of saving and the technical capital-output ratio. This means that if an economy saves more and invests in capital goods efficiently, it can increase its rate of growth. However, if the saving rate is low or if the investment is not efficient, economic growth will slow down. Therefore, option A is the correct choice. Option B is incorrect because an increase in savings will actually increase economic growth, not slow it down. Option C is also incorrect because while providing incentives for entrepreneurs to invest can increase economic growth, it is not the main focus or premise of the Harrod-Domar model. Option D is incorrect because the Harrod-Domar model does not mention or focus on the negative effects of population growth.

The Harrod-Domar Model Tells Us That