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The Incremental Capital-Output Ratio (ICOR) is the ratio of investment to growth which is equal to the reciprocal of the marginal product of capital. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital. The ICOR can be thought of as a measure of the inefficiency with which capital is used. In most ...
Kaldor postulates the “technical progress function”, which shows a relationship between the growth of capital and productivity, incorporating the influence of both the factors. Where the capital-output ratio will depend upon the relationship of the growth of capital and the growth of productivity.
The capital/output ratio is roughly constant over long periods of time; The rate of return on investment is roughly constant over long periods of time; There are appreciable variations (2 to 5 percent) in the rate of growth of labor productivity and of total output among countries.
In summation, the savings rate times the marginal product of capital minus the depreciation rate equals the output growth rate. Increasing the savings rate, increasing the marginal product of capital, or decreasing the depreciation rate will increase the growth rate of output; these are the means to achieve growth in the Harrod–Domar model.
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Therefore, at the equilibrium, the capital/output ratio depends only on the saving, growth, and depreciation rates. This is the Solow–Swan model's version of the golden rule saving rate . Since α < 1 {\displaystyle {\alpha }<1} , at any time t {\displaystyle t} the marginal product of capital K ( t ) {\displaystyle K(t)} in the Solow–Swan ...
The desired stock of capital goods is determined by such variables as the expected profit rate, the expected level of output, the interest rate (the cost of finance), and technology. Because the expected level of output plays a role, this model exhibits behavior described by the accelerator effect but less extreme than that of the simple ...
If capital's share in output is 1 ⁄ 3, then labor's share is 2 ⁄ 3 (assuming these are the only two factors of production). This means that the portion of growth in output which is due to changes in factors is .06×(1 ⁄ 3)+.01×(2 ⁄ 3)=.027 or 2.7%. This means that there is still 0.3% of the growth in output that cannot be accounted for.