If the population growth rate is 2%, the incremental capital output ratio is 3, the saving ratio is 24%, and the depreciation rate is 5%, the rate of growth of income is

Question

Quizplus · Accepted Answer

The formula for the rate of growth of income is:

Rate of growth of income = [(1-saving ratio) x (1-population growth rate)] / (incremental capital output ratio + depreciation rate)

Plugging in the given values, we get:

Rate of growth of income = [(1-0.24) x (1-0.02)] / (3 + 0.05)
Rate of growth of income = (0.76 x 0.98) / 3.05
Rate of growth of income = 0.0248 or 2.48%

Therefore, the rate of growth of income is 2.48%, which is closest to option C (3%).

If the Population Growth Rate Is 2%, the Incremental Capital