Answer to Question #167596 in Accounting for gagani

Question

1.    An economy has an ICOR of 4.5. What would be its average annual growth rate if its Domestic Savings ratio is 20% and Net Imports ratio is 7%?

Answer 1

Answer:

The question is based on the concept of the Incremental Capital Output Ratio (ICOR). ICOR is ratio to establish relationship between increase in investment and growth in GDP. 

Growth rate= $Net Saving ratio \over COR$

Net saving :

Net Saving =Saving ratio− Import Ratio

= 20%−7% 

= 13%

Growth rate:

$13 \over 4.5$% = 2.89%

Hence, the growth rate is 2.89%.