Question

13. Why can we say that the dual nature of investment in the Harrod-Domar model extends the Keynesian model? (1 point)

Answer 1

Roy Harrod and Evsy Domar introduced almost indistinguishable powerful models dependent on Keynes' macroeconomic structure, which concentrated on deciding an economy's for quite some time run development way. In investigating how the macroeconomic arrangement could reestablish full work, Keynes had concentrated on the venture as a significant classification of total interest for the economy's yield, alongside utilization requests and government requests. Harrod and Domar noted, in any case, that notwithstanding adding to total interest for yield today, investment additionally expanded the economy's expected yield later on. Hence, progressively after some time investment has both demands as well as supply reactions, and full work can be kept up over the long haul just if venture and different wellsprings of total interest become sufficiently quick to precisely assimilate the expanded yield that the investment makes conceivable. Harrod considered this specific development way the economy's justified development, the way on which the economy's roundabout stream stays in balance after some time given its innovative boundaries and investment funds conduct. In the event that total interest doesn't develop as quickly as yield limit develops after some time, joblessness will rise. The Harrod-Domar model has been depicted as a blade's edge model: when the economy drops out of its full work harmony, the economy spirals wild. This proposes when the economy tumbles off the blade's edge, there is a requirement for dynamic financial arrangements that can raise or lessen total interest so as to keep the development popular and the development in the economy's supply sided pretty much in line