The underlying assumption of the Harrod-Domar growth model is that
A)the incremental capital-output ratio is given by k = Y/K.
B)growth is mainly determined by capital accumulation.
C)growth can be sustained only if agricultural productivity rises.
D)developing countries save too much and invest too little.

Question

Quizplus · Accepted Answer

The Harrod-Domar growth model assumes that economic growth is primarily determined by the accumulation of capital. It suggests that an increase in investment will lead to an increase in output and hence economic growth. It does not assume anything about agricultural productivity or developing countries' saving and investment behavior. The incremental capital-output ratio is a concept used in the model to measure the efficiency of investment, but it is not the underlying assumption of the model.

The Underlying Assumption of the Harrod-Domar Growth Model Is That