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Harrod-Domar Growth Model Consider a poor developing country that fears domestic unrest will occur unless the growth rate of the economy is at least 4%.

Harrod-Domar Growth Model

Consider a poor developing country that fears domestic unrest will occur unless the growth rate of the economy is at least 4%.

a) If the projected ICOR (k) is equal to 3 and the saving rate (s) is equal to 20%, is this growth rate possible, based on the Harrod-Domar equation? Assume a depreciation rate (d) of 3%.

b) With the savings and depreciation rates as given, what ICOR would be required to achieve a 4% growth target?

c) What type of changes in economic conditions would be needed to alter the ICOR to achieve the stated growth target?

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