warranted growth rate
warranted growth rateThe rate at which growth must occur in a Harrod-Domar model if it is to be sustainable. If national income is Y, savings are S, and investment is I, savings are assumed to be a constant proportion of income so that S = sY. Investment is assumed to be given by an accelerator model, where investment is given by I = v(dY/dt), where t is time. For ex ante savings and investment to be equal requires that sY = v(dY/dt). This implies that the growth rate of Y must bew = (1/Y)(dY/dt) = s/v.This is the only rate at which equilibrium growth is possible, so long as the savings ratio s and the capital-output ratio v are taken as fixed.
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