Neco 2021 Economics Question 40

Practice objective / multiple choice question 40 from the 2021 Neco Economics examination.

Neco 2021 Economics Objective / Multiple Choice Hard Difficulty
Question 40 NECO • 2021 • ECONOMICS • objective

According to the Harrod‑Domar model, the economic growth rate is \(g = \frac{s}{k}\) where \(s\) is the average savings rate and \(k\) the capital‑output ratio. A country's current GDP per capita is \(\$1{,}200\) and it aims to reach \(\$2{,}000\) in 15 years. The capital‑output ratio is estimated at 3.5 and the present savings rate is 12 %. Assuming a constant savings rate and no depreciation, determine the required average annual savings rate to meet the target and comment on its realism.

Answer Options

A. Required average savings rate ≈ 20.0 % of GDP; this would double the current savings rate, suggesting the target is highly unlikely under the Harrod‑Domar framework.
Correct Answer B. Required average savings rate ≈ 12.1 % of GDP; this is only slightly above the current 12 %, so the target is marginally realistic under the Harrod‑Domar assumptions.
C. Required average savings rate ≈ 9.8 % of GDP; this is below the current 12 %, making the target easily attainable under the Harrod‑Domar assumptions.
D. Required average savings rate ≈ 15.4 % of GDP; this is considerably higher than the current 12 %, rendering the target unrealistic under the Harrod‑Domar assumptions.
Correct Answer
B
Correct Option:
Required average savings rate ≈ 12.1 % of GDP; this is only slightly above the current 12 %, so the target is marginally realistic under the Harrod‑Domar assumptions.

About This Question

This is Neco 2021 Economics Question 40. It is one of the objective questions from the 2021 Neco Economics examination.

Difficulty level: Hard .

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