= Harrod-Domar Model = The '''Harrod-Domar model''' is an early economics model of national production. <> ---- == Description == The model was designed to predict economic growth. In this manner, the work has been expanded upon in the [[Economics/SolowSwanModel|Solow-Swan model]]. The model has also been used to estimate how much investment is required in order to achieve a target GDP growth rate. ---- == Formulation == Assume that production is a [[Economics/CobbDouglasProductionFunction|Cobb-Douglas function]] of capital investment: ''Y = f(K)'' Also assume that the marginal product of capital is constant: expressed as either... * ''dY/dK = c'' * ''Y = cK'' Investment into capital over any period (''ΔK'') is composed of new savings from prior production (''s'' saving rate; ''sY'') less a depreciation term (''δ'' depreciation rate; ''δK''). It follows that the growth rate of production is equal to ''sc - δ''. ---- == Reading Notes == * [[AnEssayInDynamicTheory|An Essay in Dynamic Theory]], Roy F. Harrod, 1939 * [[CapitalExpansionRateOfGrowthAndEmployment|Capital Expansion, Rate of Growth, and Employment]], Evsey Domar, 1946 ---- CategoryRicottone