Growth Related Question..!!!!

[vandita24x7]

If saving propensity is 14% and incremental capital output ratio is 4
and population rate of growth is 3%, there is CRS and no technical
progress

a)warranted rate of growth is > than natural rate of growth
b)"              "      "    "          <  "        "         "          "
c)economy will always grow at 3% rate of growth
d)"             "     "        "      " > 3% "      "    "

Whats the correct answer n how?? pls help!

[MI]

I think answer is

a) warranted rate of growth is > than natural rate of growth

warranted rate of growth is related to Harrod-domar model  and is given by

= Saving propensity / Incremental capital-ouput ratio

= 0.14/4 = 0.035 = 3.5%

Natural rate of growth is obtained by solow model assuming all incremental population is employed.

That means Y should increase by 3% (i.e. by the rate of population growth)

Let me know if you find any fallacy.

[vandita24x7]

MI , Perfect! thank u!