although steady growth at full employment is possible in harrord type .I. Aitnou

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although steady growth at full employment is possible in harrord type .I. Aitnougn steady state growth at tuil empioyment is possibie in a Harrod type model of economic growth, such a golden age is highly improbable. Further, the deviations of actual rate of growth from the warranted rate are cumulative rather than self correcting in effect". Do you agree or disagree with this statement? (10) Q.2. Derive the fundamental dynamic equation of the Solow growth model and explain it in detail using Explain. diagrams. How does this equation resemble/differ from the Harrod-Domar dynamic equation. detail the transition to a new equilibrium neo-classical / Harrod-Domar growth model confirm to all of these stylized facts? (10) 0.3. How does a change in the saving rate affect the long run growth prospects of an economy? Explain in (10) Q.4. List the six fundamental regularities of the process of economic growth as observed by Kaldor. Does the (10)

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Harrod states that when the warranted growth rate (Gw) is more than natural rate of growth (Gn) secular stagnation will occur. In this case Gw is also greater than the real rate of growth (G) as the uppermost limit to the real rate is set by the natural rate. When Gw is greater than Gn, C > capital required (Cr )& there is an excess of capital because of shortage of workers. The shortage of workers pushes the rate of rise in output to a level lower than Gw. Machinery is rendered idle which causes excess capacity. This furthermore hampers investment, employment , output, income. Hence the economy is caught in chronic depression. In such circumstances saving is considered a vice.

This instability in Harrod’s framework is on account of the rigidity of its fundamental suppositions . These are a fixed production function, a constant saving ratio, & a fixed growth rate of the workforce. Economists have tried to ease this rigidity by allowing capital & labour replacement in the production function, by formulating the saving ratio as a function of the rate of profit & the growth rate of workforce as a variable in the process of growth

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