Lecture No.10
Weather Warranted Rate of Growth Permit Maintenance of Full Employment of Labor Force. Why Warranted Date of Growth is Not Equal to Natural Growth Rate And Actual Growth Rate.
Explain That Why Harrod Domar Model is Razor Edge Model.
To understand that either warranted rate of growth is equal to the natural growth rate.
We have to know to basic information:
1. Rate of growth of labor force.
2. Type of production function.
In Horrod Domar labor force is assumed to grow at a biological, determinants constant and proportional Rate which can be written as:
ΔN/N Rate of growth of Labor =
In Harrod Domar model production relationship with which we have seen as :
AS = δk YS = δk
This AS functional tells us nothing about labor requirement. We know that labor force in very much necessary in the production function. In Harrod Domar model production function is date of L shape. Which explain that labor and capital are completely complementary to each other. By this we means that only one combination of labor and capital is required to produce a specific guarantee of output. In this way ISO-quant of such function function as shown below:
Diagram:
Capital output ratio for = K/N = 2/4
For one unit of output = 2/4 = 1/2
For two unit of output = 4/8 = 1/2 In the above diagram 1 unit of output can be produced with two unit of capital and 4 unit of labor. Similarly, two unit of output can only be produced with u unit of labor. Similarly, 3 unit of output can be produced with 6 unit of capital and 12 unit of labor. By joining three different point a,b and c. We have an expansion path line. This line explain that capital output ratio (c.o.r) remain fix for all unit of output. Any increase in capital stock with output an increase in labor force will not affect on output in the same way an increase in the labor force while capital stock remaining the same will not affect the output.
In an economy with above production functional national income can increase at the warranted growth rate (Gw) only that time when labor force is going at the same time at as date of increase in capital stock or it can increase only when we are having an excess of labor force in the company gives. if surplus labor is available output will grow even if capital stock is growing. in the above lines we have scene that in Harrod model labor force is increasing at a biological constant proportional rate and we can make an increased by our own efforts. this growth date on increase by our on effect this growth rate of labor is called natural growth rate (GN) with the above production function we can we can have only a method labor saving technology. in this way by using less unit of labor and the same unit of capital we can produced one unit of output as shown below:
Diagram:
GN= natural growth rate
Δy/y= δs – GW (Warranted growth rate)
ΔN/N= GN (natural growth rate without use of labor saving technology)
ΔN/N + l – GN = (natural growth rate labor Force with labor saving technology)
L = ratio of labor force saving through use of
L.s.t Gw = GN = GA
L.s.t = labor Saving Technology.
For the economy to be in equilibrium warranted growth rate (gw) must be equal to (GN) natural growth rate of because in this way we will be able to maintain full utilizing of increase in capital stock and increase in labour force but in practice all the assumptions, we have taken in the model. For example, capital output ratio (C.O.R) labour saving Technology, growth rate of labour Force for all independent of one another. In this way probability that in harrod Domar model, economy will grow at equilibrium rate is practical zero. For this reason held number is called as razor edge model because slightest change from original equilibrium will bring disequilibrium in the economy.
Weather Warranted Rate of Growth Permit Maintenance of Full Employment of Labor Force. Why Warranted Date of Growth is Not Equal to Natural Growth Rate And Actual Growth Rate.
Explain That Why Harrod Domar Model is Razor Edge Model.
To understand that either warranted rate of growth is equal to the natural growth rate.
We have to know to basic information:
1. Rate of growth of labor force.
2. Type of production function.
In Horrod Domar labor force is assumed to grow at a biological, determinants constant and proportional Rate which can be written as:
ΔN/N Rate of growth of Labor =
In Harrod Domar model production relationship with which we have seen as :
AS = δk YS = δk
This AS functional tells us nothing about labor requirement. We know that labor force in very much necessary in the production function. In Harrod Domar model production function is date of L shape. Which explain that labor and capital are completely complementary to each other. By this we means that only one combination of labor and capital is required to produce a specific guarantee of output. In this way ISO-quant of such function function as shown below:
Diagram:
Capital output ratio for = K/N = 2/4
For one unit of output = 2/4 = 1/2
For two unit of output = 4/8 = 1/2 In the above diagram 1 unit of output can be produced with two unit of capital and 4 unit of labor. Similarly, two unit of output can only be produced with u unit of labor. Similarly, 3 unit of output can be produced with 6 unit of capital and 12 unit of labor. By joining three different point a,b and c. We have an expansion path line. This line explain that capital output ratio (c.o.r) remain fix for all unit of output. Any increase in capital stock with output an increase in labor force will not affect on output in the same way an increase in the labor force while capital stock remaining the same will not affect the output.
In an economy with above production functional national income can increase at the warranted growth rate (Gw) only that time when labor force is going at the same time at as date of increase in capital stock or it can increase only when we are having an excess of labor force in the company gives. if surplus labor is available output will grow even if capital stock is growing. in the above lines we have scene that in Harrod model labor force is increasing at a biological constant proportional rate and we can make an increased by our own efforts. this growth date on increase by our on effect this growth rate of labor is called natural growth rate (GN) with the above production function we can we can have only a method labor saving technology. in this way by using less unit of labor and the same unit of capital we can produced one unit of output as shown below:
Diagram:
GN= natural growth rate
Δy/y= δs – GW (Warranted growth rate)
ΔN/N= GN (natural growth rate without use of labor saving technology)
ΔN/N + l – GN = (natural growth rate labor Force with labor saving technology)
L = ratio of labor force saving through use of
L.s.t Gw = GN = GA
L.s.t = labor Saving Technology.
For the economy to be in equilibrium warranted growth rate (gw) must be equal to (GN) natural growth rate of because in this way we will be able to maintain full utilizing of increase in capital stock and increase in labour force but in practice all the assumptions, we have taken in the model. For example, capital output ratio (C.O.R) labour saving Technology, growth rate of labour Force for all independent of one another. In this way probability that in harrod Domar model, economy will grow at equilibrium rate is practical zero. For this reason held number is called as razor edge model because slightest change from original equilibrium will bring disequilibrium in the economy.
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