Neco 2020 Economics Question 14

According to the Harrod‑Domar model, the long‑run growth rate of real GDP is given by \(g = \frac{s}{v}\), where \(s\) is the savings rate and \(v\) the capital‑output ratio. The per‑capita growth rate is \(g_{pc}= g - n\), with \(n\) the population growth rate.\n\nA developing country currently has a real GDP growth rate of 5% per year and a population growth rate of 2% per year. Its savings rate is 20% of GDP and the capital‑output ratio remains constant.\n\n(a) Determine the current capital‑output ratio \(v\).\n(b) The government wishes to raise the per‑capita growth rate to 4% per year (population growth unchanged). What savings rate is required to achieve this target?\n(c) By how many percentage points must the savings rate be increased? Is this target feasible under the Harrod‑Domar assumptions?