1. Harrod-Domar Growth Model Now let's walk through the mechanics of the H-D model for an...

  

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1. Harrod-Domar Growth Model Now let's walk through the mechanics of the H-D model for an imaginary country, which we'll call Tatooine. Let's assume the following parameter values for Tatooine: ● The incremental capital-output ratio, (v = 1.5); Capital depreciates at a rate of 2% per year (d = 0.02); The population grows at 3% per year (n = 0.03); The savings rate is 10% (s = 0.10). For Tatooine, in the initial year (t=0) the capital stock equals 400 and the population is 1 A. Continuing under the assumption that the economy evolves according to the Harrod-Domar model, fill in Table 1 below. Note: Do not use the H-D growth equations yet. Instead, first completely fill in columns A to G using the production function from the H-D model and the equation for capital accumulation, then calculate the growth rates using the definition of growth rate: g(t) = [Y(t+1)-Y(t)1/Y(1) Table 1. Evolution of a Harrod-Domar Economy (A) (B) (C) Year t 0 1 2 Popu- lation L(t) 1.00 Total Capital Stock K(t) 400.00 (D) Per Capita Capital Stock k(t) 400.00 (E) Total Income Y(1) (F) Per Capita Income y(t) (G) Total Savings S(t) (H) Growth Rate of Total Income g(t) ΝΑ (1) Growth Rate of Per Capita Income g (t) ΝΑ B. Use the Harrod-Domar growth equations to find the growth rate of aggregate income, g, and the growth rate of per-capita income, g" for Tatooine. Recall that the equation for the growth rate of per-capita income is an approximation. 1. Harrod-Domar Growth Model Now let's walk through the mechanics of the H-D model for an imaginary country, which we'll call Tatooine. Let's assume the following parameter values for Tatooine: ● The incremental capital-output ratio, (v = 1.5); Capital depreciates at a rate of 2% per year (d = 0.02); The population grows at 3% per year (n = 0.03); The savings rate is 10% (s = 0.10). For Tatooine, in the initial year (t=0) the capital stock equals 400 and the population is 1 A. Continuing under the assumption that the economy evolves according to the Harrod-Domar model, fill in Table 1 below. Note: Do not use the H-D growth equations yet. Instead, first completely fill in columns A to G using the production function from the H-D model and the equation for capital accumulation, then calculate the growth rates using the definition of growth rate: g(t) = [Y(t+1)-Y(t)1/Y(1) Table 1. Evolution of a Harrod-Domar Economy (A) (B) (C) Year t 0 1 2 Popu- lation L(t) 1.00 Total Capital Stock K(t) 400.00 (D) Per Capita Capital Stock k(t) 400.00 (E) Total Income Y(1) (F) Per Capita Income y(t) (G) Total Savings S(t) (H) Growth Rate of Total Income g(t) ΝΑ (1) Growth Rate of Per Capita Income g (t) ΝΑ B. Use the Harrod-Domar growth equations to find the growth rate of aggregate income, g, and the growth rate of per-capita income, g" for Tatooine. Recall that the equation for the growth rate of per-capita income is an approximation.