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1. Assume that a country has a national saving rate of 25% and that the capital-output ratio is 3. Suppose that capital lasts forever, so
1. Assume that a country has a national saving rate of 25% and that the capital-output ratio is 3. Suppose that capital lasts forever, so that the rate of depreciation = O. In the world of Harrod-Domer model: a. Calculate the rate of growth of GDP. b. What the saving rate should be to get the growth rate up to 8%. c. Assuming the saving rate remains unchanged at 25%, by how much does the capital-output ratio need to fall in order to achieve an 9% growth rate? d. What happens to the growth rate if the depreciation rate rises to 2%? e. At the depreciation rate of 2%, what rate of savings is needed to keep a growth rate of 6%
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