= Harrod-Domar Model = The '''Harrod-Domar model''' is an early economics model of national production. <<TableOfContents>> ---- == 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''. ---- == History == This model was formulated first in Domar's [[CapitalExpansionRateOfGrowthAndEmployment|Capital Expansion, Rate of Growth, and Employment]]. It has been implemented as a predictive model for how much investment is required in order to achieve a target GDP growth rate. This model was a foundation of the [[Economics/SolowSwanModel|Solow-Swan model]]. ---- CategoryRicottone