Economics Question

[minipower]

Unluckily for me I have a basic economics exam tomorrow and I am trying to work through the lecture notes. The topic is based on development economics and sustainability. Could anyone tell me what they make of the following, especially what the abbreviations mean as there is no table to reference from. This is copied straight out of the presentation:

"Harrod Domar Model
Growth depends on level and ratio of savings;

Capital output ratio (time productivity of investment); in closed economy (aggregate) demand and supply in balance when investment equals the change in national incomes times the capital to output ratio (also when I=S). The capital to output ratio indicates the value of capital required to produce one unit of output in single period. SO the more a nation can save and invest, the quicker it can grow.

Model concludes that growth depends on amount of L and K available, I leads to more K leading to higher output and income and higher income allows more S

Classical model limitations

Economic growth not equal Economic Development
How to stimulate savings in low income economies? Should they borrow? (debt repayment problems)

Remember DRS? This would suggest that as I increases, the productivity of K decreases and capital to output ratio rises."

Any help is greatly appreciated.

Edited by minipower on Wednesday 15th December 15:48

[stefd]

I = investments
S = savings
L = labour
K = capital

[minipower]

Cheers. There have been so many abbreviations with no descriptions, I have been pulling my hair out.

Also do you know what the DRS is?

Edited by minipower on Wednesday 15th December 16:12

[jeff m]

I think DRS is the amount foreign investment (inflow)into an economy.
So the economy grows, but not because you own efforts. Think of Western money into developing countries.

I reserve the right to be wrong