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What is the capital-output ratio?
Capital-output ratio:
This ratio (k) is the amount of capital required to produce £1 of Gross Domestic Product generated, every year.
• When £6 worth of capital equipment makes all £1 of yearly output in that case the capital-output ratio is six to one.
• A three to 1 ratio shows that simply £3 of capital is needed to produce every £1 of output, every year.
The Harrod-Domar model plays the key role through the productivity of investment that is an economy capital-output ratio (k). The additional productive producer goods which, the lower the capital output ratio that the advanced the economic growth.
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