Question

1.For the Harrod-Domar model to work it must be the case that dollars of development aid increase (consumption, savings, trade) _____,, and this leads to an increase in (investment, consumption, trade)_____, and this leads to (consumption, growth, capital to output ratio) _____

Answer 1

For the Harrod-Domar model to work it must be the case that dollars of development aid increase savings and this leads to an increase in investment and this leads to capital to output ratio and this leads to growth. So according to this model, when there is a development aid is more the it increases savings because these are dependent on development aid. When savings increase then investment will automatically increase because more savings lead to more investment. This will increase capital to output ratio which will increase growth of the economy because when capital and output increase then GDP of the economy will automatically increase. So these factors are interrelated because with the increase in development aid, savings increase, then investment increase, then capital to output ratio increase, which leads to economic growth. So it's main focus is to increase development aid.