Enter the savings ratio and the capital output ratio into the Calculator. The calculator will evaluate the Harrod-Domar Equation.

## Harrod-Domar Equation Formula

O(g) = s/k

Variables:

- O(g) is the Harrod-Domar Equation ((growth in total output))
- s is the savings ratio
- k is the capital output ratio

To calculate growth in total output from the Harrod-Domar Equation, divide the savings ratio by the capital output ratio.

## How to Calculate Harrod-Domar Equation?

The following steps outline how to calculate the Harrod-Domar Equation.

- First, determine the savings ratio.
- Next, determine the capital output ratio.
- Next, gather the formula from above = O(g) = s/k.
- Finally, calculate the Harrod-Domar Equation.
- After inserting the variables and calculating the result, check your answer with the calculator above.

**Example Problem : **

Use the following variables as an example problem to test your knowledge.

savings ratio = 6.75

capital output ratio = 23.234

## FAQs about the Harrod-Domar Model

**What is the significance of the savings ratio in the Harrod-Domar model?**

The savings ratio represents the proportion of income that is saved rather than spent on consumption. In the Harrod-Domar model, a higher savings ratio is critical as it indicates more funds are available for investment, which in turn can lead to higher economic growth.

**How does the capital output ratio affect economic growth according to the Harrod-Domar model?**

The capital output ratio indicates the amount of capital required to produce a unit of output. A lower capital output ratio means that less capital is needed for production, potentially leading to more efficient economic growth, as per the Harrod-Domar equation.

**Can the Harrod-Domar model predict long-term economic growth accurately?**

While the Harrod-Domar model provides insights into factors influencing economic growth, it has limitations in predicting long-term growth due to its assumptions, such as constant savings and capital output ratios, and neglecting technological advancements and labor force changes.

**Why might a country have a high savings ratio but still experience slow economic growth?**

A high savings ratio alone does not guarantee fast economic growth. Other factors, such as inefficient investment, poor economic policies, lack of technological advancement, and political instability, can hinder growth despite high savings.