Assignment Task: Harrod-Domar Growth Model
Consider a poor developing country that fears domestic unrest will occur unless the growth rate of the economy is at least 4%.
a) If the projected ICOR (k) is equal to 3 and the saving rate (s) is equal to 20%, is this growth rate possible, based on the Harrod-Domar equation? Assume a depreciation rate (d) of 3%.
b) With the savings and depreciation rates as given, what ICOR would be required to achieve a 4% growth target?
c) What type of changes in economic conditions would be needed to alter the ICOR to achieve the stated growth target?