Advanced Macro & Growth · advanced
What moves on the Harrod-Domar Growth Model diagram
A higher natural ratenatural rateThe unemployment level set by structural forces (matching, turnover, institutions) rather than the business cycle. widens the gap between labour-force growth and capital-funded growth. Nothing in Harrod-Domar reconciles the two: the knife-edge problem.
Two rates matter: the warranted rate saving can fund, and the natural ratenatural rateThe unemployment level set by structural forces (matching, turnover, institutions) rather than the business cycle. the labour force allows.
A baby boom (or migration wave) pushes the natural ratenatural rateThe unemployment level set by structural forces (matching, turnover, institutions) rather than the business cycle. to the right.
The warranted rate hasn't moved: saving and technology are unchanged.
Labour now grows faster than capital can employ it: rising unemployment with no self-correcting force. That knife edge is why Solow rebuilt the model.
Examiners ask this as: baby boom, population growth, labour force surge, demographic boom.
Other scenarios on Harrod-Domar Growth Model