Harrod Domar Model

The Harrod Domar model shows the importance of saving and investment in a developing economy. The model was developed independently by Roy F. Harrod in 1939. The growth of an economy is positively related to its savings ratio and negatively related to the capital-output ratio. It suggests that there is no natural reason for an economy to have…
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Theory of Production: Short-Run Analysis

The Theory of Production explains the principles by which a business firm decides how much of each commodity that it sells (its “outputs” or “products”) it will produce. And how much of each kind of labor, raw material, fixed capital goods, etc., that it employs (its “inputs” or “factors of production”) it will use. Economics, models, and…
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The Relationship between Education and Health

If you had to guess, would you say better education lead to better health or does better health lead to a better education? The answer isn't that simple. While people commonly understand that the more educated you are, the higher your income is likely to be, which is also likely to lead to better health. However, better health could help people…
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Perfect Competition in the Long Run

In the long run, we assume that all Factors of Production are variable, which means that the entrepreneur can adjust plant size or increase their output to achieve maximum profit. Perfect Competition Long Run equilibrium results in all firms receiving normal profits or zero economic profits.Perfect Competition Long Run Factor MobilityThe…
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Objectives of Central Banks

Central banks oversee the banking system in their country. They play an important role in managing a state's currency, money supply, and interest rates. There are five primary objectives of central banks. The Federal Reserve is the central bank of the United States.Objectives of Central Banks1. Inflation A central bank pursues a low…
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