Capital Output Ratio and Economic Development

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Capital Output Ratio and Economic Development
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What is the role of capital output ratio in economic development? (...) Read more? Sign up for free
 

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Relationship Between Investments and Economic Growth
Anonymous
Capital output ratio is useful for economic planning. Suppose a government targets an economic growth of 6% for next year. The current capital output ratio in this country is 4. This means that in order to realize 6% growth, investments should be increased to 24% (6 x4).
Capital output ratio thus explains the relationship between the level of investment and the corresponding economic growth. There is a simple economic equation that shows thus relationship between investment, capital output ratio and economic growth:
Economic Growth = Savings as a percentage of GDP / Capital Output Ratio
Or
EG = S / V
Here, G is economic growth, S is saving as a percentage of GDP and V is the capital output ratio.
 

   

   

         
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