Advanced Macro & Growth · intro
What moves on the Harrod-Domar Growth Model diagram
In Harrod-Domar, growth equals saving over the capital-output ratio, so a higher saving rate directly raises the warranted growth rate.
Growth needs investment, and investment is funded by saving.
A national campaign (or compulsory scheme) lifts the saving rate.
The saving line rises, crossing the investment-requirement line at a higher growth rate.
Warranted growth is s/v: more saving buys more growth, one for one. This arithmetic drove decades of development policy.
Examiners ask this as: saving campaign, national savings, thrift drive, compulsory saving, saving rate rises.
Other scenarios on Harrod-Domar Growth Model