Answer to Question #283638 in Economics for Sal

Question

Choose the best answer to each question

The underlying assumption of the Harrod-Domar

growth model is that

(a) growth potential is affected by employment of

labor input relative to

capital.

(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.

The diagram on the y

right represents

the

Harrod-Domar

production

functions for Countries

A and B.

Which of the following correctly

compares the two countries?

(a) Capital is subject to the law of

diminishing returns in both

countries.

(b) Country A has lower ICOR than

Country B.

(c) Country A has lower capital productivity

than Country B.

(d) If the saving rate is the same in the two

countries, then Country B will have a higher

output growth rate.

.

Answer 1

The underlying assumption of the Harrod-Domar growth model is that growth potential is affected by employment of labor input relative to capital.

So, the correct answer is (a).

This question can't be answered without the diagram mentioned.