Answer to Question #222074 in Economics for Oheneba Joseph

Question

Harrod asked a number of fundamental questions for the understanding of the growth performance of any country, be it developed or underdeveloped, namely: if changes in income induce investment, what must be the rate of growth of income for plans to invest to equal plans to save in order to ensure a moving equilibrium in a growing economy through time? In static Keynesian theory, if growth equilibrium is disturbed, will it be self-correcting or self-aggravating? And will this equilibrium rate be equal to the maximum rate of growth that the economy is able to sustain given the rate of growth of productive capacity? Analyse the various ways in which Harrod considered these questions?l

Answer 1

In 1973, Harrod published Economic Dynamics, which contained a holistic presentation of his theory of economic dynamics. It clearly defines a number of concepts introduced by Harrod in earlier work. Most importantly, Harrod explicitly included in his analysis the impact of monetary and financial expansion, foreign trade, and international capital flows on economic dynamics.

Many of the concepts that Harrod used in his earlier work are now clearly defined. The model of economic dynamics proposed by Harrod has taken on a finished form. In part, he gave it a graphic interpretation. Most importantly, Harrod explicitly included in his analysis the impact on economic dynamics of monetary and financial expansion, foreign trade, international capital flows, and formulated criteria that limit the effectiveness of the monetary and financial policy. In addition, Harrod responded to criticism from the authors of neoclassical growth theory, however, without naming them.